Dec 8, 2014 - The Arizona Department of Health Services, Bureau of. Emergency Medical ...... returned his phone to Veriz
IN THE OFFICE OF ADMINISTRATIVE HEARINGS
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In the Matter of:
No. 2014A-EMS-0305-DHS
American Medical Response of Maricopa, LLC
ADMINISTRATIVE LAW JUDGE DECISION
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HEARING:
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September 15 through 18, 2014; September 29 through October 3,
2014. APPEARANCES:
American Medical Response of Maricopa, LLC appeared
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through attorney, Ronna Fickbohm. The Arizona Department of Health Services, Bureau of
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Emergency Medical Services & Trauma System appeared through Assistant Attorneys
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General Kevin Ray, Laura Flores, and Patricia LaMagna.
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through attorney, Lawrence Rosenfeld.
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The Intervenors appeared
ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer _______________________
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INTRODUCTION
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American Medical Response of Maricopa, LLC (“AMR”) filed with the Arizona
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Department of Health Services (“Department” or “ADHS”) an Application for a certificate of
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necessity (“CON”) to provide immediate response, interfacility, and convalescent
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ambulance services.
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holders were given permission to intervene. AMR has demonstrated that a CON should be
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granted, principally, for the following reasons:
An evidentiary hearing was held in which several existing CON
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AMR has shown that there is a public necessity for its proposed services.
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AMR has shown that it is fit and proper to provide the services proposed.
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AMR has shown that the proposed service area, type, and level of service is in the
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best interests of the public.
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AMR has shown that its proposed rates and charges are just, reasonable, and
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sufficient. FINDINGS OF FACT Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826
Background
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1.
AMR, Applicant herein, is a wholly owned subsidiary of American Medical
Response, Inc. AMR was established in order to hold the ADHS CON that the pending application requests issuance of, and to operate the ground ambulance service in the event the CON is issued. 2.
American Medical Response, Inc. is a national medical transport company
operated under Envision Healthcare Corp. (“EVHC”), its parent corporation. 3.
American Medical Response, Inc. also owns River Medical, Inc., (“River
Medical”) the holder of CON No. 94 and Life Line Ambulance Service, Inc. (“Life Line Ambulance” or “Life Line”) the holder of CON No. 62. 4.
ADHS, through the Bureau of Emergency Medical Services & Trauma
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System (“BEMSTS” or “Bureau”), regulates ambulance services in Arizona. A.R.S. Title
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36, Chapter 21.1, Article 2; A.A.C. R9-25-901 through - 1110.
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5.
With an August 14, 2013 letter to Terry Mullins, the Bureau Chief,
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American Medical Response, Inc.’s President, Edward Van Horne, submitted the
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pending application. AMR Ex. 1A.
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6.
ADHS issued a June 6, 2014 Notice of Hearing and Appointment of
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Administrative Law Judge; a June 19, 2014 Notice of Errata and (separate) Amended
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Notice of Hearing; and an August 29, 2014 Second Amended Notice of Hearing.
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7.
Pursuant to A.R.S. § 36-2234, ADHS provided the required notice to other
ambulance services, or other interested parties, in the affected area. 8.
Rural/Metro Corporation (Maricopa) dba Rural/Metro Ambulance Service
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dba Arizona Medical Transport dba AMT (CON No. 109); Professional Medical
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Transport, Inc. dba PMT Ambulance (CON No. 71); R/M Arizona Holdings, Inc. dba
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Canyon State Ambulance dba Payson Medical Transport dba LifeStar EMS (CON No.
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58); Emergency Medical Transport, Inc. dba American Ambulance (CON No. 75);
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ComTrans Ambulance Service, Inc. dba ComTrans Ambulance dba ProMed Transport
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dba American ComTrans (CON No. 46); SW General, Inc. dba Southwest Ambulance
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(CON No. 86) and Southwest Ambulance of Casa Grande, Inc. dba Southwest
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Ambulance and Rescue of Arizona (CON No. 66) petitioned to intervene and were 2
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granted intervenor status. Each of these legal entities is owned by the same parent entity, Rural/Metro, Inc. Collectively, these intervening CON holders are referred to herein as “Intervenors,” “Rural/Metro,” or “Rural/Metro Group” The Application
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9.
Subsequent to its receipt of AMR’s August 14, 2013 Application, on
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September 4, 2013, ADHS/BEMSTS, through Ambulance Services Manager Todd
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Jaramillo, issued an Administrative Incomplete Letter and requested nine categories of
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information. AMR Ex. 1B.
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10.
On October 24, 2013, AMR responded, enclosing seven additional
documents to supplement AMR’s original application. AMR Ex. 1C. 11.
By his November 8, 2013 Administrative Complete Notice, Jaramillo
notified AMR the Application was administratively complete. AMR Ex. 1G. 12.
By his January 10, 2014 Notice of Substantive Review, Jaramillo
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submitted fifteen requests for responses or additional information as part of the
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Bureau’s substantive review. AMR Ex. 1H.
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13.
On March 10, 2014, AMR responded to the Notice of Substantive Review,
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including a revised Ambulance Revenue and Cost Report (“ARCR”) and documents
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related to corporate allocations. This also amended the original Application. In this,
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AMR proposed response times as follows:
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RESPONSE TIMES (ALL EMERGENCY)
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1. Ten minutes, zero seconds (10:00) on eighty (80) percent of all emergency transports.
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2. Fifteen minutes, zero seconds (15:00) on ninety-five (95) percent of all emergency transports.
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3. Twenty minutes, zero seconds (20:00) on ninety-nine (99) percent of all emergency transports.
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In connection with formal emergency response contracts, notwithstanding specific contractual requirements, the following minimums:
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RESPONSE TIMES (EMERGENCY SERVICE CONTRACTS) 3
1
Within any of the cities granted in which the applicant has located a central operations or sub-operations station for responses within that city:
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1. Ten minutes, zero seconds (10:00) on ninety (90) percent of all emergency transports.
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2. Fifteen minutes, zero seconds (15:00) on ninety-five (95) percent of all emergency transports.
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3. Twenty minutes, zero seconds (20:00) on ninety-nine (99) percent of all emergency transports.
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For non-emergency inter-facility ambulance service requests, the following arrival times were proposed:
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INTER-FACILITY ARRIVAL TIMES1
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1. Within sixty minutes, zero seconds (60:00) on ninety (90) percent of all unscheduled non-emergent transfers from a licensed healthcare facility from the time the call is taken.
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2. Within thirty minutes, zero seconds (30:00) on ninety (90) percent of all unscheduled urgently needed services not available at the sending licensed healthcare facility from the time the call is taken.
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3. Within twenty minutes, zero seconds (20:00) on ninety (90) percent of the scheduled pick-up, at the bedside, for all non-emergent transfers scheduled more than sixty (60) minutes but less than four (4) hours in advance from a licensed healthcare facility for the requested pick-up time.
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4. Within ten minutes, zero seconds (10:00) on ninety-five (95) percent of the scheduled pick-up, at the bedside, for all non-emergent transfers scheduled more than four (4) hours in advance from a licensed healthcare facility for the requested pick-up time.
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.AMR Ex. AI, AMR 00197-98.
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14.
By way of its April 24, 2014 Amended Identity package, AMR notified the
Bureau it had amended the technical name of the Applicant and resubmitted many of
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1
While the document originally called these “response times,” AMR acknowledged that this is a technical term limited by statute and rule. 4
1 2
the core Application documents in order to accurately show the identity of the Applicant. This included the ultimately operative ARCR. AMR Ex. 1J. 15.
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In his April 30, 2014 letter, John Valentine alerted the Bureau that the
service area had been amended so as to include the Banner Del E. Webb Medical Center located at 14502 W. Meeker Blvd., Sun City West, AZ 85375 campus. AMR Ex. 1L.
This led to ADHS/BEMSTS’ May 12, 2014 request for additional information
regarding that addition.
AMR Ex. 1O.
By letter dated May 16, 2014, Valentine
responded with seven categories of information. AMR Ex. 1P. 16.
In its June 5, 2014 findings letter, BEMSTS submitted its review of AMR’s
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proposed rates and charges, recommending the same rates and charges except with
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regard to mileage, as follows (AMR Ex. 1Q): ALS rate: $862.40 BLS rate: $768.20 Mileage rate: $15.48 Standby/Waiting rate: $192.05 Subscription Service rate: $80.54 Disposable Medical Supply rate: Separate charges apply
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During the hearing, AMR formally stated its acceptance of BEMSTS’ adjustments to the proposed initial rates. 17.
AMR submitted all information required by R9-25-902(A)(1) to BEMSTS
through its amended Application and hearing testimony/exhibits: A.
The name of the ground ambulance service is American Medical
Response of Maricopa, LLC. AMR’s operations station and contact information is 1181 N. Tatum Blvd., Suite 3031, Phoenix, AZ 88403; phone: (928)855-4104; fax: (928)855-4141; and email:
[email protected]. B.
The name, title, address, and telephone number has been
provided for the applicant (Edward B. Van Horne, President, American Medical Response, Inc., 6200 S. Syracuse Way, Suite 200, Greenwood Village, CO 80111; tele:
303-495-1220), each individual responsible for managing the
ground ambulance service (Glenn Kasprzyk, 1099 W. Iron Springs Road, Prescott, AZ 86305, tele: 928-445-3814, address at AMR will be same as listed 5
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above at A; John Valentine, 415 El Camino Way, Lake Havasu City, AZ 85403, tele: 928-855-4104, address at AMR will be same as listed above at A; Leslie Mueller, 4099 McEwen Road, Suite 200, Farmer’s Branch, TX 75244, tele: 925250-5835), the business representative/designated manager (Glenn Kasprzyk & John Valentine), the individual to contact to access the ground ambulance service’s records (Natalie Allen, current address 415 El Camino Way, Lake Havasu City, AZ 86403, tele: 928-855-4104), and the statutory agent (CT Corp., 3225 N. Central Ave., Suite 1601, Phoenix, AZ 85021, tele: 602-277-4792). C.
Upon issuance of a CON, Danniel Stites, M.D., will serve as AMR’s
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Administrative Medical Director and John C. Lincoln, North Mountain Hospital,
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250 E. Dunlap Ave., Phoenix, AZ 85020, tele:
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AMR’s Advanced Life Support (“ALS”) base hospital. AMR Ex. 32.
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D.
602-943-2381, will serve as
AMR will be dispatched through Life Line Ambulance’s dispatch,
915 Hinman St., Prescott, AZ 86305; tele: 928-445-3811. E.
AMR identified the likely general area for each anticipated sub-
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operation station located within the proposed service area (AMR Ex. 44, at
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03989) but stated that precise locations will depend upon those facts existing
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when the CON is issued.
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F.
AMR is a limited liability company.
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G.
AMR is proprietary.
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H.
Each ambulance’s mobile and portable radios will provide the
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necessary two-way communication with company dispatch, local PSAP, hospital
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emergency departments and air ambulance services. In addition to the radios,
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each ambulance will also be provided with a cellular telephone.
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I.
The make and year of each ground ambulance vehicle that will be
used was listed in the Amended Identity package (AMR Ex. 1(J), 00633, et seq.).
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6
J.
1
The Application listed the ambulance personnel by Arizona
certification as 58 BEMTs, 0 IEMTs, and 25 PARAMEDICS (for a total personnel
2
number of 83).2
3
K.
4
The proposed hours of operation are 24 hours a day, 7 days a
week, 52 weeks a year.
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L.
6
ALS ground ambulance service will be provided, including 911
system coverage.
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M.
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Basic Life Support (“BLS”) ground ambulance service will be
provided, including 911 system coverage.
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N.
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AMR has acknowledged its receipt of the statutes and regulations
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governing operation of an ambulance service in the State of Arizona, and stated
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its intent to comply with the same. O.
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AMR’s representative avowed the information and documents
provided were true and correct.
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P.
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application.
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18.
AMR’s designated representative, Edward Van Horne, signed the
AMR also provided the information required by R9-25-902(A)(2):
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A.-D. AMR generally identified where ground ambulance vehicles would
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be located within the subject service area, it provided its statement of proposed
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general public rates and proposed charges as modified by the acceptance of the
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reduced mileage rate recommended by BEMSTS following its review.
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identified its proposed response and arrival (IFT) times as those listed above at
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Paragraph 14 and confirmed that its proposed response times were based on
24
the required factors. E.
25
It
AMR intends to provide temporary ground ambulance service to
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the proposed service area during limited times when AMR is unable to provide
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ground ambulance service by relying upon mutual aid agreements including, per
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testimony elicited during the hearing, mutual aid agreements AMR intends to
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These are not the “FTE’s” (Full Time Equivalents) numbers as reflected on the ARCR, pg. 4. 7
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enter into after receiving a CON. All parts of the proposed CON service area are also already covered by at least one existing CON. AMR’s sister entity, Life Line Ambulance, does extend slightly into Maricopa County and would also be available for mutual aid. If there is any cause for an extended ability to provide ground ambulance service above and beyond AMR’s immediately available resources, including what is available through mutual aid agreements, AMR will call upon the vast reserve of personnel and equipment it has available nationally
8
through its parent, American Medical Response, Inc. as well as the financial
9
resources available through that parent company’s ultimate parent company,
10
EVHC (upon approval by ADHS/BEMSTS). F.
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The other ground ambulance service providers currently operating
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in the proposed service area are the Intervenors, the City of Phoenix’s Fire
13
Department, the Buckeye Fire District - to the extent it services the Gila Bend
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CON area, Gila Bend Rescue/Ambulance, a small portion of the Sun City West
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Fire District, and a small portion of Life Line Ambulance, as represented on the
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maps admitted as AMR Ex. 3A and B. G.
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Last, through the Application and testimony elicited at hearing, it
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was confirmed that none of the individuals who will be directly responsible for
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managing AMR (Edward Van Horne, Leslie Mueller, John Valentine, and Glenn
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Kasprzyk), have been convicted of a felony or misdemeanor involving moral
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turpitude, have operated a ground ambulance service without a required
22
certification or licensure in any state, or have had a license or certificate of
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necessity suspended or revoked by any political subdivision or state.
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19.
AMR also provided the information required by R9-25-902(A)(3), including
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a description and map of the proposed service area, a projected (amended) ARCR,
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information regarding financing agreements for all capital acquisitions exceeding
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$5,000.00, a cash flow analysis, subscription service contracts, the necessary
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certificate of insurance, and descriptions of the designated managers’ backgrounds and
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experiences.
30
8
1 2 3 4 5 6 7 8
20.
As noted above, AMR has also provided the documents and information
required by R9-25-902(B) - information regarding ALS medical direction and proof of professional liability insurance for ALS personnel. 21.
With its application, AMR also paid the $100 application filing fee
required by R9-25-902(D)(1). 22.
During his testimony, Ambulance Services Manager, Todd Jaramillo,
agreed AMR had met all of the technical application requirements. 23.
As such, the requirements of A.A.C. R9-25-902 have been met. Additional Evidence Submitted at the Hearing
9 10
24.
During the hearing, no requests were made for permission to provide
11
public comments regarding AMR’s Application.
12
Exhibits
13
25.
During the course of the hearing, the following exhibits were admitted:
14
A.
ADHS: Ex. 1–27; 29-31.
15
B.
AMR: Ex. 1A-1Q; 2A.20; 3A and B; 5A-G; 6; 7F; 7H; 8A1 and A2;
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9A; 10A; 11A; 12A; 13A; 14A; 18; 20; 22-24; 26A-D; 32; 34; 35B, D, F, H,
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J, K and Q; 36-37C; 39; 41; 44-45H; 47; 48; 50G; 52A-D; 53A, D-K, M, O
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and P; 59; 61; 62; 64-66.
19
C.
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22; 30; 31.
21 22
Rural/Metro: Ex. 1A, E, I and Q; 2A-G; 3A-F; 4B, C and G; 8A-E;
Witnesses called by AMR 26.
Edward Van Horne, American Medical Response, Inc.’s President,
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testified in support of AMR’s application, establishing his own experience and
24
qualifications (summarizing his work in the EMS field since 1989), as detailed in his
25
resume (AMR Ex. 1C at 0158-0160). He testified as follows:
26
A.
American Medical Response, Inc. provides ground ambulance
27
services, doing over 3 million transports a year in 40 states and the District of
28
Columbia, serving over 2,000 communities. These communities range in size
29
from major metropolitan to very rural.
30
transports are 911 system transports. Approximately 40% are non-emergency. 9
About 60% of the ground ambulance
It provides disaster management services across the country for FEMA, under
1
contract. The company also runs air ambulance services and provides stretcher
2
van/wheelchair transportation for Medicaid populations. RT V1 at 21-22.3
3
B.
4
American Medical Response, Inc.’s business model is to have an
individually licensed entity for every community served, with each business unit
5
custom-designed for the unique aspects of its EMS system. Id. at 22-23.
6
C.
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Van Horne is familiar with ADHS/BEMTS’ regulations and
ambulance system designs in Arizona. Id. at 24-27.
8
D.
9
If granted a CON, AMR would have a team/organization behind it
10
possessing the necessary knowledge and expertise to keep it compliant with
11
Arizona’s regulations and statutes. Id. at 27-28. E.
12
Mr. Van Horne discussed and elaborated upon the entire amended
13
Application package (AMR Ex. 1A-Q), including the rapid submission of the
14
initial Application due to the fear of a complete system failure as a result of
15
Rural/Metro’s bankruptcy. He elaborated upon what the parent company does
16
by way of its FEMA contract (including being able to deploy two sets of 300
17
ambulances at any one time, within seventy-two hours, for any natural or man-
18
made disasters, and company management of all the associated financing). He
19
explained the amendment of the Applicant’s name. He discussed the fact that
20
through Deutsche Bank, American Medical Response, Inc. (through EVHC) has
21
$280 million worth of cash available to support the organization. Id. at 28-39;
22
48-52. F.
23
AMR has not received any objection or negative feedback from
24
Sun City West Fire District regarding inclusion of the Banner Del E. Webb
25
campus in AMR’s proposed service area. Id. at 40. G.
26
Van
Horne
stated
AMR’s
acceptance
of
ADHS/BEMSTS’
27
recommendations regarding the proposed rates and charges, including a lesser
28
mileage rate than what is set forth in the Application. Id. at 43.
29 30
3
The Reporter’s Transcript of Proceedings (“RT”) will be referenced by volume (“V”) and page. 10
1 2 3 4 5 6 7 8 9
H.
AMR’s medical direction would be provided by Danniel Stites,
M.D., with John C. Lincoln functioning as AMR’s ALS base hospital. Id. at 44. I.
Van Horne testified to the integrity and experience of AMR’s
management team, on both a local and regional level, including the efforts American Medical Response, Inc. takes to check into the backgrounds of its employees.
He established the fact that regional management would be
provided by Leslie Mueller, and that local management would be provided by John Valentine and Glenn Kasprzyk. Id. at 45-47. J.
Business units wholly-owned by American Medical Response, Inc.
10
have previously been found fit and proper to hold CONs in Arizona, specifically
11
River Medical and Life Line Ambulance. Id. at 47-48.
12
K.
American Medical Response, Inc. has experience stepping into
13
communities that unexpectedly or suddenly lost the sole ambulance transport
14
provider, to fill that void, including a provider that went bankrupt in Tennessee, a
15
provider that went bankrupt across fourteen counties in Mississippi, when a
16
company went bankrupt in Virginia and Ohio in the last twelve months, and when
17
there was a system failure in Monterey, California. After Rural/Metro recently, in
18
connection with its bankruptcy, pulled out of certain 911 communities in Indiana
19
and Tennessee, American Medical Response, Inc. became active in discussions
20
with those communities about their alternative plans. Id. at 53-54.
21
L.
American Medical Response, Inc.’s position on the pending
22
Application is that it is “absolutely a hundred percent committed to establishment
23
of a high-quality EMS, both for 911 services that proposals get let on in the
24
county here and then, also, the entire secondary healthcare transportation
25
system, which is one that [Van Horne] believe[s] has been underserved,
26
specifically recently.”
27
proposed arrival times and quality standards for the non-911 transportation
28
services, which he sees as a critical piece of the entire healthcare continuum.
29
Changes in healthcare, including moving paramedics and EMTs into home-
30
based care, increased freestanding emergency rooms and urgent care facilities,
Id. at 54:14-20.
11
This is why AMR’s Application has
1 2
combine to a situation in which there is a need for a very robust system to move patients within those (non-911) areas. Id. at 54-55. M.
3 4 5 6 7
AMR applied for a CON 10 days after Rural/Metro filed bankruptcy
because it felt the state may need a new provider if the bankruptcy led to administrative or operational failures. In discussing the timing of the pending Application, American Medical Response, Inc. had looked carefully at the Maricopa County needs, to see what was happening with the current providers,
8
specifically Rural/Metro consolidating the seven CONs that it now operates, and
9
considered feedback from the municipalities that were issuing requests for
10
proposals (“RFP”) for ambulance transportation services, including concern that
11
there was only one provider to whom these RFPs could be submitted. It was
12
American Medical Response, Inc.’s intent to finance a start-up in either the event
13
of a Rural/Metro entity collapse or due to major administrative or operational
14
failures. The national company is available to step in on a much larger scale, if
15
necessary, on an emergent basis. Id. at 55-60. N.
16
American Medical Response, Inc. has operations that provide
17
service to all types of communities from the smallest to those with more than 3 or
18
4 million people, including communities in California, Florida, Seattle, and
19
Portland. Id. at 86-87. O.
20
On cross-examination, Van Horne testified to his awareness of all
21
of the local subsidiary companies owned by Rural/Metro being included in the
22
Rural/Metro bankruptcy (not just the parent company), and because of that, and
23
the amount of capitalization for operations and revenue recognition that has to
24
occur in order to have a healthy EMS system, he does believe the bankruptcy
25
will have a significant impact on the local business units such that this will
26
ultimately lead to those companies ceasing to do business or leaving the market.
27
He established his familiarity with this scenario over time, on a national basis.
28
Id. at 74-75.
29
27.
30
Edward Armijo retired from his job with ADHS/BEMSTS, after
approximately 23 years, as Deputy Bureau Chief, where he oversaw all aspects of the 12
1 2 3 4 5 6 7
Bureau including the CON process, including analyzing ARCRs.
Through that
ADHS/BEMSTS work, he became familiar with ambulance transport regulation and the history of the different providers in Arizona. Id. at 88-90. He testified to the following: A.
Explanation of what CON service areas cover Maricopa County
(referencing maps found at AMR Ex. 3A and B) and what fire districts are excluded from AMR’s proposed CON service area. Id. at 91-95. B.
The small portion of Intervenor Canyon State that is found in the
8
northeastern part of Maricopa County has very little population and is largely
9
wilderness. Id. at 96-97.
10
C.
The proposed CON service area overlaps all of the City of Phoenix
11
and overlaps the CON service areas of the Intervenors to the extent their service
12
areas are in Maricopa County. Id. at 97-100.
13 14 15
D.
Witness introduced AMR Ex. 48, showing 2010 population
densities as concentrated in Phoenix and the other municipalities. E.
Before 1997, in Maricopa County, there were six CONs owned by
16
five different private individuals/entities (as opposed to those CONs held by
17
public entities): CON Nos. 46, 66, 71, 75, 86, and 109. Two of those six were
18
owned by the same private company such that there were five different private
19
persons/entities holding CONs to serve portions of Maricopa County.
20
Additionally, as of June 1997, Canyon State Ambulance (CON No. 58), which
21
extends into a small part of the northeastern corner of Maricopa County, was
22
also privately owned. Over the course of the next approximately fifteen years,
23
Rural/Metro, Inc. acquired all of these private companies. In June 1997, CON
24
Nos. 66 and 86 were transferred to Rural/Metro (wholly owned subsidiaries)
25
resulting in the greater metropolitan Phoenix area/Maricopa County population
26
center being covered by a public entity (the City of Phoenix Fire Department)
27
and CONs held by four different private individuals and entities. Then, between
28
2002 and 2005, CON Nos. 46, 71, and 75 were acquired by a single private
29
entity (Star West Associates, LLC). This resulted in ownership, as of 2005, of
30
the privately held Maricopa CONs to be further reduced to a total of two different 13
1 2 3 4 5 6
entities (Star West Associates, LLC and Rural/Metro, Inc.). Then, in 2012, CON Nos. 46, 58, 71, and 75 were transferred to Rural/Metro, Inc., creating a situation in which Rural/Metro then owned, and continues to own, all of the privately held CONs serving Maricopa County, with the exception of the small portion of Life Line Ambulance’s CON No. 62 found in the northwest corner of Maricopa County. Id. at 102-11; see also, AMR Ex.6. F.
7
The following letters of support for the Application were sent to
8
ADHS Director Humble (RT V1 at 111-12):
9
-
07/09/14
Arizona Healthcare Association “represents the vast majority
10
of long term care skilled nursing providers in the State of Arizona.” It
11
believes the ambulance and emergency transportation system is critical to
12
the success of its care of vulnerable residents and patients. Because of
13
this, it believes “a choice of providers is both a good and necessary
14
thing.” It asks the Director to consider opening the CON arena to AMR,
15
which company it looks forward to collaborating with in patient care. AMR
16
Ex. 26A.
17
-
07/23/14
Letter from Tempe Vice Major includes statement that
18
“recent developments in the emergency medical service industry are
19
cause for concern. Industry consolidation, financial instability and state
20
processes have left Tempe in need of additional options. One emergency
21
medical service provider option for a community of 168,000 residents is
22
problematic.”
23
Tempe residents at risk.” Tempe supports “efforts to introduce multiple
24
emergency medical service providers into the Maricopa County market,”
25
as this will lead to improved patient satisfaction, improve community
26
health and reduced costs. AMR Ex. 26B.
27
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07/17/14
Additionally, “one service provider unnecessarily places
Town of Gilbert Mayor states Gilbert’s prior partnership with
28
its East Valley neighbors in a regional consortium for emergency medical
29
services was done to “raise the quality of emergency ambulance service
30
and response times being provided to [their] residents and promote a 14
safer, less vulnerable community.” However, “provider consolidation and
1
financial uncertainty are creating serious concerns for [the] consortium.”
2
Gilbert “needs more than one medical service provider option in order for
3
[it] to properly provide the higher level of service and safety [its] residents
4
need and deserve.” Gilbert supports efforts to allow multiple emergency
5
medical service providers into the market. AMR Ex. 26C.
6 7
-
07/17/14
Letter from Gilbert’s Town Manager compliments the
8
Mayor’s observations by stating that Gilbert’s “efforts to provide a higher
9
level of care for [its] residents appear to be in jeopardy as the sole
10
remaining provider for ambulance services continues to struggle with
11
contract compliance and equipment issues.” It has become :very clear”
12
that “to properly provide the higher level of service [its] residents deserve,
13
the Town of Gilbert needs more than one medical service provider option
14
in the marketplace.” AMR Ex. 26D.
15
G.
The witness also introduced State Representative Paul Boyer’s
16
July 28, 2014 letter to Director Humble which noted Rural/Metro’s status as the
17
sole private provider in Maricopa County and observed that “the lack of service
18
options coupled with recent financial questions have left some municipalities
19
with only one service provider option.”
20
Glendale. Because of this situation, he supports “efforts to introduce multiple
21
emergency medical service providers into the Maricopa County market.”
22
single service provider under the current market conditions “unnecessarily
23
places residents at risk.” AMR Ex. 47.
24
H.
In particular, he noted the City of A
On cross-examination, Armijo also established the fact that within
25
the City of Phoenix, the Phoenix Fire Department does most of the 911
26
transports, Rural/Metro does some, and that the need for ambulance transports
27
in the City of Phoenix area is primarily for inter-facility transports (including
28
convalescent) (“IFT”). RT V1 at 122-24.
29 30
I.
Armijo had no role in obtaining the letters sent to the Director
(AMR Ex. 26A through D and 47). Id. at 132-33. 15
1 2 3 4
28.
Bryce Cook is a consultant with Navigant Consulting, a large
international firm that consults on business, economic, and litigation matters through its approximately 40 offices and 2,000 employees. Its clients include large fortune 500 companies, government agencies, hospital systems, healthcare providers, and a vast
5
array of other companies.
6
National Association of Certified Valuation Analysts, and his Certification as a
7
Management Accountant (CMA), which is broader in scope than a CPA because in
8
addition to financial accounting and auditing, it includes economics, business strategy,
9
corporate finance, and management accounting topics. He has experience assessing
10
the financial condition of companies and making projections as to future financial
11
events, as well as extensive experience in the healthcare industry. He has previously
12
been qualified as an expert in both federal and state courts. He was retained by AMR
13
to analyze the financial health of EVHC, including its ongoing financial viability, and to
14
compare EVHC with Rural/Metro, Inc. in terms of financial health and viability. Cook’s
15
testimony included financial information for both Rural/Metro, Inc. and EVHC from
16
quarterly reports that came out in August, after his July 2014 report was prepared. His
17
PowerPoint presentation incorporated the information that became available in August.
18
Id. at 140-48. He testified to the following (see also, AMR Ex. 59, Cook’s PowerPoint
19
presentation, and 23, Cook’s report): A.
20 21
His qualifications include his MBA, membership in the
Neither Cook nor Navigant had any previous relationship with
EVHC or its wholly owned subsidiary companies, including AMR. Id. at 149. B.
22
Cook was not requested or directed to try to achieve any particular
23
results.
24
opinions and conclusions based on the evidence and analysis. Id.
25
Navigant’s desire is to be completely independent and to arrive at C.
In connection with analyzing financial viability, documents that
26
have been subject to an independent auditor’s review and analysis are optimal.
27
EVHC’s financial statements do have this review and the company is subject to
28
another level of assurance through the regulations and standards of the
29
Securities & Exchange Commission. Id. at 150.
30
16
1 2 3 4 5 6 7 8 9
D.
All corporate finance texts or basic investing literature will use
three building blocks to assess financial condition of a company: financial performance (revenue received as compared to expenses incurred), solvency (a company’s ability to meet long-term financial commitments/obligations; including debt level and whether there is sufficient equity to cushion difficult times), and liquidity (a company’s ability to meet its short-term obligations through cash on hand or generated through operations). Id. at 152-55. E.
Using these metrics, Cook analyzed EVHC’s financial performance
as having a “very strong” earnings growth from 2011 through 2014.
He
10
attributed EVHC’s net revenue growth primarily to it obtaining new contracts, as
11
well as increasing volume and/or rates under existing contracts and continuing
12
acquisitions.
13
approximately $25 million in net income in 2011 to currently being on track to
14
have approximately $46 million in net revenue through calendar year 2014,
15
although he thinks it will probably be higher. He explained the decline in 2013
16
as associated with EVHC’s strategic decision to retire a large portion of its debt
17
early, which in the long run makes the company much more healthy from a
18
financial risk standpoint. A certain level of debt is good for a company unless
19
the company leverages to a critical or high risk point, when the debt then
20
becomes a problem. EVHC retiring much of its debt provides it greater financial
21
flexibility in the event of hard times or an economic downturn. Cook also looked
22
at operating income to address profitability: if a company is not making a good
23
operating income margin, there are problems with how the business is being run.
24
He observed that EVHC had been able to increase its operating income over
25
time, growing at over 16%, while revenue was growing at just over 10%. The
26
last metric of financial performance, cash flow, is distinguishable from income,
27
which is an accounting measure.
28
concerned with cash flow deficits given their billing cycles. EVHC had a “very
29
strong” cash flow. Cook compared stock analyst reports to his own conclusions
30
to double check them, referencing one opining that EVHC is out performing
He analyzed EVHC’s profitability as trending upward from
Healthcare providers must especially be
17
1 2 3 4 5 6 7 8 9
original expectations on growth and the analysts expect continued high performance in sales growth and profitability. Id. at 156-65. F.
With regard to solvency, Cook examines a company’s leverage,
debt load and equity cushion. EVHC’s equity cushion had gone from 14% to 37% in 2014 (37% cushion). This cushion mitigates risk. Id. at 165-67. G.
With regard to liquidity (short-term ability to meet obligations),
Cook looked at cash on hand and the cash conversion cycle.
EVHC has
significant cash balances. Id. 168. H.
The overall picture of EVHC’s financial health is that the company
10
“is definitely financially sound and financially competent.” Based on its historic
11
financial performance, as well as trending, it can reasonably be expected to
12
continue having strong financial performance into the future. Id. 169.
13
I.
Cook also compared EVHC to Rural/Metro Corporation, observing
14
that through American Medical Response, Inc., EVHC had approximately 2.8
15
million patient transports in 2013, about twice as many as Rural/Metro reports,
16
that Rural/Metro operates in 21 states while American Medical Response, Inc.
17
operates in 41, that American Medical Response, Inc. has 169 emergency
18
contracts compared to Rural/Metro’s 90, and that Rural/Metro has about half as
19
many employees (including its employees for fire service). Id. at 169-70.
20
J.
In doing this comparison, Cook could not prepare as many
21
charts/analyses as he did for his inquiries into EVHC’s financial stability, as
22
Rural/Metro, Inc. does not publicly report its finances the way EVHC does. But
23
he was able to obtain information from Rural/Metro’s quarterly reportings to the
24
Bankruptcy Court. Id. at 171.
25 26 27
K.
EVHC’s projected net revenue has been growing steadily, while
Rural/Metro’s is basically flat. AMR Ex. 59 - Chart 22. L.
EVHC holds a much stronger operating income margin position
28
(between 6.7% and 8.7% during the last three quarters) than Rural/Metro
29
(showing two negative quarters, and a positive 2% in the second quarter of
30
2014). Id. at Chart 23. It does not appear Rural/Metro is on track to meet its 18
1 2 3 4 5 6 7
bankruptcy plan projections, which included 2014 operating income of $20 million, when halfway through the year it is at a $1 million loss, meaning it will have to basically make $21 million over the last two quarters of 2014, which absent “something dramatic” happening, is unlikely. RT V1 at 179-80. M.
Cook next looked at operating cash flow (AMR Ex. 59, Chart 24).
EVHC’s is strong for the last three quarters available (going from over $29 million in the fourth quarter of 2013 to more than $63 million in the second
8
quarter of 2014) while Rural/Metro’s was negative the first two quarters and
9
positive (just over $11 million) for the second quarter of 2014. The negative
10
operating cash flow means Rural/Metro had to continue to rely on either cash
11
balances or debtor financing. The second quarter of 2014 improvement still is
12
not enough to put it on track to meet its bankruptcy court forecasts. Cash flow is
13
important to the capital expenditures an ambulance transportation company
14
must make, such as vehicles.
15
Rural/Metro’s is much lower. Cook noted that Rural/Metro’s bankruptcy filings
16
indicated its capital expenditures have also been lower than what it put in its
17
forecast (a negative when a company is in financial distress).
18
Rural/Metro reduced capital expenditures, which would be one reason they were
19
able to bring its last quarterly operating cash flow ratio up. Rural/Metro is in a
20
fairly precarious position, not having enough operating income to cover interest
21
payments, and therefore having to rely on existing cash reserves or outside debt
22
(see also his Charts 25 and 26). Id. at 180-82.
23
N.
EVHC has a very healthy cash flow.
It appears
Cook discussed quarterly equity percentages (his Chart 27) noting
24
EVHC’s cushion of between 37% and 38% as of the last three quarters reported
25
as “pretty good,” as compared to Rural/Metro’s cushion of between 11% and
26
12%, despite its cutting its debt in half through the bankruptcy. This “poses
27
significant financial risk to the company” as it is not much cushion in the event of
28
difficult times, such as an economic recession, difficulties with payments under
29
the contracts it enters into, etc. Id. at 182-83.
30
19
1 2 3 4 5 6 7 8 9
O.
Cook’s final comparison was a “Z-score” analysis that is “a very
well-known score for predicting bankruptcy” that has been supplemented by four additional studies, is generally acceptable, and is used in bankruptcy courts, by academics, and by practitioners. Long term studies show an accuracy rating of approximately 90% to 95% with respect to within one year of predicting insolvency. Rural/Metro’s score was about half of EVHC’s and Rural/Metro was in the distress zone which represents “companies that are likely to enter into bankruptcy within a year.” Id. at 183-85. P.
EVHC is financially sound and can reasonably be expected to
10
exhibit strong ongoing financial performance into the future; it exhibits a stronger
11
financial condition based upon operating performance, operating margins,
12
revenue growth and debt level as compared to Rural/Metro. EVHC’s ongoing
13
viability is also more secure. Id. at 185. This is further detailed in Cook’s report,
14
AMR Ex. 23.
15
Q.
Even if Rural/Metro was able to meet its projected $20 million in
16
income for 2014, this would not allow it enough income to service the interest
17
obligation on its debt (which appears to be approximately $36 million per year).
18
Id. at 187.
19
R.
On
cross-examination,
Cook further
established
Navigant’s
20
impartiality by testifying that it had previously provided services to both
21
Rural/Metro and Rural/Metro’s equity owner, Oaktree Capital. Id. at 192-93.
22
S.
EVHC is the appropriate entity for the comparison with
23
Rural/Metro, as opposed to American Medical Response, Inc., because
24
American Medical Response, Inc. is a subsidiary of EVHC and it would be
25
impossible to allocate, for example, that segment’s share of the company’s debt.
26
It is appropriate to look at the parent company because it is one consolidated
27
company. Id. at 203; 229-31.
28
T.
Cook also clarified he focused primarily on Rural/Metro’s first and
29
second quarters (2014) to give it the benefit of the doubt, only looking to the
30
bankruptcy period for background and context. Id. at 210-12. 20
1 2 3 4 5 6 7
U.
At one place in his report, Cook used adjusted EBITDA (earnings
before interest, taxes, depreciation and amortization), which was not one of the charts discussed during his presentation on direct examination, for which he instead relied upon the first and second quarter bankruptcy reports filed by Rural/Metro. He clarified that whether an adjusted EBITDA metric should be considered would depend upon the metric one was looking at and what the generally acceptable calculation is. He disagreed that it would be relevant to the
8
operating margin trend and that restructuring costs would already be taken into
9
account in looking at the cash flow to capex and operating cash flow to revenue
10
ratios. Restructuring costs would not be added back into the short term debt
11
coverage ratio. Id. at 216-17.
12
V.
Also
on
cross-examination,
when
engaging
in
counsel’s
13
“conceptual questions” (Id. at 218), Cook pointed out that had adjust EBITDA
14
been used for his comparison between Rural/Metro and EVHC, this would have
15
changed not just Rural/Metro’s numbers, but would have also changed EVHC’s
16
numbers (raising EVHC’s margins), which is why he chose to simply use
17
operating income, to have a consistent comparison (Id. at 222). He elaborated
18
that there are “countless numbers” one can look at when discussing adjusted
19
EBITDA. He attempted to simplify his analysis by examining operating income
20
and bottom line net income. Id. at 224.
21
W.
When asked why he had not made adjustments for “non-recurring
22
expenses,” Cook explained that this would be subjective, and disagreed that
23
because he had not adjusted for “non-recurring expenses,” his conclusions were
24
inaccurate - taken as a whole, when everything is looked at (revenue growth,
25
various levels of profitability) regardless of whether one metric is changed to
26
include or exclude non-recurring costs, it is still pretty evident if a company is
27
having financial difficulty or performing well.
28
includes all non-cash expenses, Cook does not know if it is even feasible to
29
adjust the cash flow to capex ratio for “non-recurring expenses.” Whether or not
30
non-recurring expenses are added back to short term debt coverage ratios is not 21
Operating cash flow already
1 2
important, what is important is doing an apples-to-apples comparison when looking at two companies, which is what he did. Id. at 229-31. X.
3 4 5 6 7
One has to be careful about the footnotes in the quarterly reports
filed by Rural/Metro with the bankruptcy court, as there is no representation from an independent auditor that these reports are compliant with generally accepted accounting principles (“GAAP”) and sometimes management “tries to paint or represent a better picture, to the extent they can.”
EBITDA is not a GAAP
8
measure, which is why Cook chose to use GAAP measurements in order to do
9
his comparisons.
He did not do the “add back ins” discussed on cross-
10
examination because these are subjective and because of his desire to keep as
11
close to GAAP accounting standards as is possible. He does not believe by not
12
adding those numbers back in he provided any unfair disadvantage to
13
Rural/Metro in his calculations. Adding back in the one-time expenses does not
14
fundamentally change Rural/Metro’s ability to pay its interest expenses going
15
forward.
16
operating income. One could “do all kinds of little footnote adjustments to try to
17
make that ratio better; but at the end of the day, it appears that [Rural/Metro’s]
18
interest expense is going to be higher - it is higher than what they projected even
19
in their operating income on their own financial projections.” The “add back in
20
issue” does not change his opinion that Rural/Metro is not on track to meet its
21
projections for operating income for 2014. Id. at 242-46. Y.
22
Its interest expense is “very high” going forward, as related to its
Oaktree tried to get Navigant to withdraw from the project it
23
undertook for AMR (Id. at 240-41).
24
29.
Leslie Mueller is South Region CEO for American Medical Response,
25
Inc. It is her responsibility to make sure the individual business units in her region are
26
financially sound and that the clinical expertise, medicine, and customer experience is
27
also strong. All Arizona operations fall within her responsibility. She would be the
28
leader for the Maricopa operation, supporting Glenn Kasprzyk and John Valentine with
29
the resources and talent they need. Id. at 248-49. She testified to the following:
30
22
1 2 3 4 5 6 7
A.
Her expertise for the management role includes 32 years in EMS
(beginning as an EMT and working her way up through management), her oversight of large operations, her familiarity with working on behalf of private companies to forge partnerships with public entities - including through RFPs, her experience in recruiting and retaining employees, and her focus on financial sustainability. Id. at 249-56. (See also, AMR Ex. 39). B.
Financial sustainability of an organization is interrelated with
8
clinical care.
9
revenues needed to invest in capital improvements, it will be distracted from the
10
clinical medicine and have trouble attracting the right talent and motivating
11
workforce toward clinical metrics. Id. at 255.
12 13 14
C.
If a company is struggling to make payroll, or cannot collect
She is familiar with populations the size of Maricopa County,
including communities in Florida and Las Vegas. Id. at 256-57. D.
She also has familiarity and experience with American Medical
15
Response, Inc. addressing an ambulance system collapse or failure, such as an
16
exclusive provider suddenly departing. American Medical Response, Inc. has
17
stepped in when this has occurred in the past, including in Monterey County,
18
California, and contingency planning for Santa Clara County, California. Id. at
19
257-59.
20
E.
Louden County, Tennessee (Knoxville) has contacted American
21
Medical Response, Inc. for contingency planning given service level concerns
22
and the recent bankruptcy of its provider - Rural/Metro. Id. at 259-60.
23
F.
She is familiar with the operations work done for AMR by John
24
Valentine and Glenn Kasprzyk.
25
environment, which she prefers. Id. at 260-61.
26 27 28
G.
She is familiar with Arizona’s regulated
American Medical Response, Inc. was not included in the
bankruptcy of its prior owner, LaidLaw. RT V2 at 290-91. H.
When questioned regarding AMR being the exclusive provider in
29
various urban markets, she clarified that this involved situations in which the
30
company had been selected through an RFP, which does not mean that other 23
1 2 3 4
ambulance transport companies were not available to bid or would not be available if the governmental entity became dissatisfied with American Medical Response, Inc. Id. at 282; 291-92. 30.
Nicholas Poan, Senior Vice President of Accounting and Chief
5
Accounting Officer for EVHC, has a background in auditing for Deloitte & Touche and
6
as the Senior Vice President of Finance and Chief Accounting Office for a publicly
7
traded healthcare company in southern California - Alliance Healthcare Services. He
8
also is a CPA in California. At EVHC, he is responsible for all of the accounting, books
9
and records, and SEC filings. It is his job to be intimately familiar with EVHC’s financial
10
status. On a consolidated front, he is the most knowledgeable person in this regard.
11
This includes knowledge of its wholly owned subsidiaries, such as American Medical
12
Response, Inc. Id. at 294-97. He testified to the following: A.
13
Financially, EVHC is a “very healthy” company. This is primarily
14
measured through profitability and cash flow, as well as its ability to do capital
15
transactions needed and finance business operations. As of EVHC’s June 30,
16
2014 SEC reporting, it had approximately $160 million in cash and borrowing
17
capacity of approximately $315 million, available to fund American Medical
18
Response, Inc.’s operations. Id. at 297-98 (see also AMR Ex. 1J at 00668). B.
19
Financially, American Medical Response, Inc. is “very healthy”
20
based upon profitability and ability to generate cash flow to fund the needs of the
21
company such as capital requirements. The company provides cash flow to
22
EVHC, and EVHC provides its full support to American Medical Response, Inc.
23
(including borrowing power and financial stability). Id. at 297-300. C.
24 25
04.
26
31.
EVHC is fully supportive of AMR’s pending Application. Id. at 303-
Rich Bartus, American Medical Response, Inc.’s Regional Operations
27
and Finance Officer (south region), has established both operational and financial
28
expertise obtained over the course of more than 20 years in the ambulance
29
transportation services industry. The southern region he oversees includes Arizona, he
30
has directly prepared all of the ARCRs for River Medical over the last five years and is 24
1 2 3 4
familiar with Arizona’s regulatory environment.
consistent with other work he does on a weekly and daily basis. He prepared AMR’s estimated first full year of operations ARCR (amended). Id. at 309-18. He testified to the following: A.
5 6 7
Arizona’s ARCR preparation is
AMR’s estimated first year ARCR (amended) was calculated
through communications with the operations team based upon its research and due diligence, including projected population growth, anecdotal information from
8
customers and the community, strategic review of market opportunities and
9
estimations of the projected community needs. To arrive at the approximately
10
29,000
11
particularly in the aging population, discussions from customers about their
12
needs, estimation of “lost transports” (calls not in the system because of service
13
issues or lack of availability).4 This information includes that found in AMR Ex.
14
36 (population growth and changes). Bartus looked at similarly sized markets
15
and demographics, the needs of those communities, including comparisons with
16
Las Vegas, Miami, Dallas, and Denver. His analysis included whether there
17
would be any room for AMR to enter the system or whether the Application
18
would be a waste of money. If AMR did not think it could not meet the ARCR, it
19
would not be in the hearing. The operant ARCR is reasonable and achievable.
20
Id. at 319-30.
21
transports,
B.
AMR
examined
population
data,
population
growth
There are synergist opportunities available as between AMR and
22
the River Medical and Life Line operations, including the ability to maintain a
23
lower cost structure, translating into better rates for the community.
24
includes purchasing power, enhanced communications and dispatch, patient
25
billing, employment pool opportunities, and ongoing exchanges of information.
26
This will also benefit Life Line and River Medical by distributing costs among
27
multiple locations, maintaining a lower cost structure, and maintaining lower
28
growth rates in each unit’s cost structures.
29
synergistic purchasing power allows for lower costs for the most state of the art
30
25
This
From the equipment side, the
clinical equipment and allows the negotiation of favorable purchasing power with
1
medical suppliers. Id. at 330-33.
2
C.
3
A unit hour utilization analysis was used in connection with
preparation of the ARCR. It is a common metric to measure efficiency. Id. at
4
333-34.
5
D.
6
In formulating the ARCR, Bartus was aware the proposed service
area’s 911 needs are primarily served by the City of Phoenix and the
7 8
Intervenors’ contracts with other municipalities.
9
conservatively did not rely upon any material 911 revenue as part of the first
10
year financial model. However, this does not mean AMR does not want to be
11
involved in the 911 market. Nationally, approximately 60% of its revenue is
12
derived from 911 contracts. Id. at 336-41. E.
13
Bartus
also
considered
the
Because of this, he
Intervenors’
historical
ARCR
14
reportings. In doing so, he observed the Intervenors’ over reporting of revenue
15
in 2012, which then required a reduction of income in 2013 (as this relates to
16
Rural/Metro’s financial impact calculations and bankruptcy). Id. at 342-46; 352-
17
53 (see also AMR Ex. 18; 37A and B). F.
18
Bartus’ evaluation of the consolidated financial data from the
19
Intervenors’ ARCR reports (2010 through 2013) is that with their deteriorating
20
financial performance, there is a risk of their not being able to meet the future
21
needs of the community.
22
struggling company can improve its situation by seeking abnormal rate increases
23
or by removing expenses otherwise incurred to support day-to-day operations
24
(such as payroll), thereby potentially reducing adequate care. Id. at 349-51 (see
25
also AMR Ex. 37C). G.
26
The risk for day-to-day care is that a financially
AMR’s estimated 29,000 first year transports cannot be strictly
27
compared to the number of transports done by the Intervenors in 2013 due to
28
population growth and transports that may have been “lost” to the system
29
because there were no services available for the patient. The future (2015)
30
4
“Lost calls” are in the context of non-911/inter-facility transports. 26
1 2 3 4 5 6 7
impact on the existing providers will not be the loss of 29,000 calls.
The
Intervenors provided between 210,000 to 220,000 total transports as of calendar year 2013. This is a combination of IFT and 911 transports. Id. at 353-55. H.
Bartus also help calculate the proposed rates and charges by
looking at existing rates for certificated holders in Maricopa County, agreeing those were reasonable, just, and appropriate for AMR’s Application.
These
worked compatibly with Bartus’ other calculations for the estimated first year
8
ARCR. The adjustment in the mileage rate, as recommended by the Bureau, is
9
not a cause for concern.
The proposed rates will support the proposed
10
operation, will support the requested response time criteria and are not
11
inconsistent with the suggested operations plan. American Medical Response,
12
Inc. has no reason to request rates that it believes would be too low to support a
13
sustainable business unit. Id. at 359-61.
14
I.
Mr. Bartus affirmed AMR’s “every intention in pursuing 911
15
opportunities in the community” but he was unable to state unequivocally that
16
any particular opportunity would be pursued, because no opportunities currently
17
exist. 911 transport work is not seen by AMR as “less desirable” than IFT work.
18
Id. at 364-65; 517; 520.
19
J.
He also explained the changes as between the original ARCR and
20
the subsequent submissions including certain cost adjustments done over time
21
due to the parent company’s growth, which resulted in a lower cost structure for
22
individual business units. Id. at 368-83.
23
K.
The reason AMR should be able to be profitable at the same rates
24
and charges the Rural/Metro Group utilized is a result of the parent company’s
25
cost and debt structures, meaning it can run more efficiently, it anticipates
26
seeing a lower cost per transport to provide certain support services, and it has
27
a lower interest expense to charge its subsidiaries for capital borrowings. Id. at
28
508-10.
29 30
L.
While AMR’s proposed rates and charges were modeled on the
existing providers when the Application was submitted, since that time there was 27
1 2 3 4 5 6 7 8 9
a general rate inflator, approved by ADHS, which increased rates for all existing certificate holders. As such, AMR’s proposed rates are less than those currently being charged by the Intervenors and the City of Phoenix. Id. at 521. M.
On rebuttal, Bartus testified that the Rural/Metro assumptions
regarding Rural/Metro Ex. 4C were wrong, this was just a budgetary model he uses nationwide, picking line items where appropriate, and with regard to Maricopa County the terminology of day/night on the document is not applicable. RT V9 at 1983-86; 1988-90. N.
Bartus is actively involved in the preparation of all monthly
10
financial statements within AMR’s south region, directly preparing the same in
11
coordination with AMR’s corporate office. He personally reviews and extracts
12
the data using GAAP. He applies the data to the ARCR reportings in Arizona
13
and then reviews them to ensure accuracy. AMR requires a secondary review
14
as a check/balance. This is done on at least two levels. As such, AMR will have
15
no problem providing ADHS with the balance sheets and cash flow statements
16
found on pp. 15 and 16 of the ARCR form, utilizing GAAP - Bartus has been
17
doing this voluntarily over the past couple of years. Id. at 1990-94.
18 19 20
O.
If ADHS requires audited financial statements for any specific CON
holder, AMR will comply. Id. at 1995. P.
The region Bartus oversees would be equal to approximately 80%
21
of the size of Rural/Metro’s overall national operation (from a revenue
22
perspective). Id. at 1995-96.
23
Q.
Bartus explained significant events impacting corporate allocations
24
between when AMR submitted its Application in August 2013 and when its
25
amended ARCR was submitted in March 2014. This included the acquisition of
26
Life Line and American Medical Response, Inc. securing large contracts
27
nationally, leading to a tremendous amount of growth, which reduced corporate
28
allocations for all business units. Id. at 1997-98.
29 30
R.
There are certain risks any ambulance transport company has that
require working capital, including delays in payment for services, changes in 28
1 2 3 4 5 6 7 8 9
reimbursements allowed, cost of fuel, and accidents.
While EBITDA may
measure financial performance to investors, it is not a measure of financial condition. If an ambulance company does not have cash, it cannot withstand risks associated with obtaining revenue reimbursements.
Without cash, it
cannot pay its costs, it cannot make debt payments. A company protects itself from risks such as fluctuations in fuel costs (which can nationally be a multimillion dollar impact) or labor strikes, by having available cash reserves (working capital). Id. at 1998-2003. S.
Rural/Metro Corporation and American Medical Response, Inc.,
10
via its parent EVHC, are not on comparative financial footing. One can look at
11
adjusted EBITDA or EBITDA, but most important is free cash flow and net
12
income. American Medical Response, Inc. has produced solid financial results
13
over the previous years and has the backing of a significantly strong parent with
14
sufficient cash and working capital to fund any growth objective in the
15
foreseeable future.
16
expectations, while being on track with transport volume. To meet its bottom line
17
objectives, it has to reduce expenses by $30 to $35 million. Fixed costs do not
18
change. This means Rural/Metro has to look at things like fuel and labor to
19
achieve any significant reduction in expenses. Id. at 2003-2007.
20
T.
In contrast, Rural/Metro is not meeting revenue
Based on the testimony of Rural/Metro’s witnesses, Bartus
21
prepared an estimate of Rural/Metro’s capital equipment replacement cycle
22
(AMR Ex. 66), using John Karolzak’s testimony, information available about the
23
Intervenors’ annual revenue, and Rural/Metro Corporate’s 2015 ambulance
24
revenue projections.
25
Rural/Metro, Bartus’ best estimates are that simply to replace ambulances in
26
Maricopa County (fully equipped) will require over $6 million. However, after
27
subtracting an estimated $1 million for all Rural/Metro fire equipment
28
replacement from its annual national capital expenditure projection number,
29
Maricopa County’s proportionate share of the national capital expenditure fund
30
(estimated), based upon its proportionate share of revenue, will only be
Based upon the information that was available from
29
1 2 3 4 5 6 7
approximately $3.5 million.
Its projected deficiency is over $2.6 million. As
such, Rural/Metro will either not follow its age and mileage caps or money will have to be pulled away from other parts of the country or other counties in Arizona to support Maricopa due to the shortage in free cash flow. In looking at the net change in cash over time from Rural/Metro’s bankruptcy projections (AMR Ex. 66, p. 2), Bartus’ opinion is that the margin of error and tolerance of risk are very difficult. Without being able to maintain policies and procedures on
8
replacement schedules, vehicles will get older, equipment will become out of
9
date (technology), equipment problems will happen. A company cannot spend
10
amortization or other adjusted EBITDA “add backs” to fund these expenditures.
11
Id. at 2007-08; 2012-21. U.
12
American Medical Response, Inc. is able to purchase equipment
13
such as ambulances at a lower cost than Rural/Metro, given its larger size and
14
resulting its collective purchasing power. Id. at 2047.
15
32.
16 17
Philip Drake, Ph.D. is a Clinical Professor of Accounting at Arizona State
University, and he testified to the following: A.
Drake possesses accounting expertise through both private
18
experience and his academic pursuits, including his Ph.D. in accounting, his
19
CPA, and his certification as a financial planner (AMR Ex. 22). RT V2 at 387-93.
20
B.
Drake has no prior relationship with AMR, American Medical
21
Response, Inc., or EVHC.
22
speak to the issue of whether there is a need for an additional provider of
23
ambulance transportation services in Maricopa County.
24
detailed in his report (AMR Ex. 20). Entirely independent of Mr. Cook, he also
25
looked at liquidity, solvency, and operational performance. Id. at 393-96.
26 27 28
C.
He was retained to analyze EVHC’s fitness and His conclusions are
Using audited financial statements is important in order to have
confidence in the results. Id. at 399-401. D.
Using the audited financial statements, which provide the cleanest
29
understanding of operating performance, is also preferable to using EBITDA
30
calculations. Id. at 404. 30
E.
1 2 3 4 5 6 7
without considering the cost of borrowing funds, the assumption that there will not be any taxes paid, and the assumption that there will be no replenishment of capital equipment, which is an unrealistic way to look at a company’s performance. If a business is successful, it will pay its taxes, pay its creditors, reinvest in its infrastructure. If one does not consider all of these things, that person is believing in a “fairytale.” Id. at 405. F.
8 9 10
The problem with an EBITDA analysis is that one looks at earnings
Drake’s operating performance analysis revealed that EVHC is
doing well, making progress and improving, getting good returns on its investments, and generating a good operating cash flow. Id. at 401-04.
11
G.
EVHC has no negative liquidity issues. Id. at 405-08.
12
H.
EVHC’s debt to equity and long term debt ratios are all within
13
industry averages. Id. at 408. I.
14
Recent events support EVHC’s financial stability, including
15
upgrading of its bond ratings and EVHC’s substantial refinancing of its debt
16
structure. There were no negative recent events that would cause concern. Id.
17
at 409-10. J.
18 19
EVHC has the financial strength and operating performance
necessary to build and sustain an ambulance service. Id. at 410-11. K.
20
To examine Rural/Metro Corporation’s financial condition, Drake
21
emphasized its post-bankruptcy status and looked at what it had reported to the
22
bankruptcy
23
representations, which one must be a bit more cautious with). To double check
24
what was reported, Drake looked online and found information associated with
25
Rural/Metro’s Santa Clara County performance reports.
26
Rural/Metro’s operating cash flows were negative in its first quarter 2014, which
27
means it has to sell assets or get someone to invest in the company. Id. at 411-
28
15.
29 30
L.
court
(which
are
unaudited
statements
-
management’s
He determined
Rural/Metro putting a tax benefit on its balance sheet and in its
financial statements is of concern because this is a tax benefit that it cannot 31
1 2 3 4 5 6 7
realize; its projections filed with the bankruptcy court are that it will not pay any federal taxes for at least five years.
That means there cannot be the “tax
benefit” Rural/Metro uses in its financial reportings. If it does not make money, it cannot take advantage of deductions. Id. at 416-17. M.
Rural/Metro is also continuing to pay fees and expenses for its
bankruptcy. Id. at 418. N.
Rural/Metro is showing an operating loss after taxes of $2.6
8
million, which is probably more appropriately $4 million because there is no
9
visible tax benefit (which is how it got to the $2.6 million loss instead of $4
10 11
million). Id. at 418. O.
Unless something changes operationally within Rural/Metro, it will
12
have to continue to be supported by outside money, it cannot generate enough
13
money to support itself going forward. Id. at 418-19.
14
P.
Drake did take Rural/Metro’s claimed “one time” post-bankruptcy
15
costs into consideration. Even so, it still will not break even on its operating
16
activities. It cannot generate enough income to meet its debt load. Because this
17
is just based on one quarter, Drake compared it to pre-bankruptcy information
18
and the Santa Clara County reports and saw that they are directionally
19
consistent. Id. at 419-24.
20
Q.
Even taking into consideration the $4 million spent on bankruptcy
21
restructuring fees, when comparing Rural/Metro’s 2014 first quarter reporting to
22
pre-bankruptcy and its Santa Clara County reportings, everything tells the same
23
story: Rural/Metro’s operating performance is not sufficient to meet its debt
24
covenant, which gives rise to concern about its ongoing strength. This is in
25
contrast to EVHC which has audited financial statements, good and stable
26
liquidity, solvency that is improving, and a positive operating performance.
27
Rural/Metro, using self-reported numbers has good liquidity coming out of
28
bankruptcy, but it is diminishing as its operating performance declines. This
29
gives rise to the question of whether there is the need for another entity to
30
support Rural/Metro. Id. at 424-25. 32
R.
1 2 3 4 5 6 7
After completion of his report, Rural/Metro’s second quarter
bankruptcy reporting became available and Drake did consider this to see if there were any substantial changes. The second quarter self-reporting did not change his bottom line conclusions. Rural/Metro showed some improvement on its income statement, but it is still not enough to meet its debt obligation, operating performance is barely at break even, and the company is still running at a multi-million dollar loss for the quarter. Before any proposed income tax
8
benefit, it is showing a loss of nearly $6 million and the income tax benefit is
9
questionable.
10
If it cannot actualize this, its true loss is $5.8 million.
If it
actualizes the tax benefit, its loss will be $3.3 million. Id. at 426-28; 430-31. S.
11
Per Drake’s report, “there is a public benefit for an additional
12
private company to operate an ambulance service in the Maricopa County
13
service area” given his financial analysis (AMR Ex. 20, p. 12).
14 15 16
T.
Drake does teach in the area of corporate restructuring. RT V2 at
U.
Adjustments for Rural/Metro’s bankruptcy professional fees, in
434.
17
connection with the metrics utilized, would be “di minimis.” Certain ratios would
18
not be impacted at all, such as current assets divided by liabilities. In discussing
19
where the adjustments might have been considered, Drake clarified this would
20
not have affected the ultimate qualitative conclusion, it would only have made
21
minor changes. Id. at 449-53.
22 23 24 25 26 27 28
V.
Drake also pointed out that one would have to determine whether
the alleged “non-recurring expenses,” were truly one-time fees. Id. at 456-57. W.
Notably, the Rural/Metro quarterly bankruptcy reportings do not
call the professional fees “one-time, non-recurring.” AMR Ex. 2A20, p. 2. X.
It is also incorrect to calculate supposed “non-recurring” expenses
in analyzing cash flow. RT V2 at 467. Y.
If EVHC entered the Maricopa County market, there would be
29
more stability in the for-profit entities serving the ambulance transports needs of
30
the community. Id. at 469-70. 33
Z.
1 2
bankruptcy court is a red flag, as they are management’s assertions. Id. at 471. AA.
3 4 5
While post-bankruptcy Rural/Metro may appear solvent from a
point in time view (static), what is of concern is the decline in its position. Id. at 476. BB.
6 7
The fact of Rural/Metro submitting unaudited financials to the
Despite
the
second quarter
improvement
in
Rural/Metro’s
reportings to the bankruptcy court, there are still concerns about Rural/Metro
8
Corporation’s financial stability going forward.
While some of the number
9
discussions raised by Rural/Metro are “intriguing,” the bottom line is that
10
Rural/Metro is a $600 million company that is “barely breaking even, if at best.”
11
A $2 million, $4 million, or even $11 million adjustment will not make that big a
12
change in the picture. Id. at 481-82.
13
33.
John Valentine, currently the General Manager for American Medical
14
Response, Inc.’s business unit River Medical testified to his 33 years in the emergency
15
medical services businesses, starting as an EMT and working his way up through
16
various ambulance transportation service management positions. With the AMR team,
17
he assisted in compiling the Application and gathering the underlying information. RT
18
V3 at 546-49. He testified as follows:
19 20 21
A.
Maricopa County has a population of almost 4 million people. Id.
B.
Representatives from hospitals and long term care facilities in
at 549.
22
Maricopa, as IFT users, articulated their discomfort with the current “Rural/Metro
23
only” situation and reported a degradation in some of the services provided,
24
which was attributed to the fact of Rural/Metro’s consolidation of essentially all
25
the private providers in the County. Id. at 550.
26
C.
Based upon Intervenors’ ARCR reportings, well over 200,000
27
ambulance transports a year are being done by Rural/Metro. This does not
28
include transports done by the Phoenix Fire Department or the fire districts that
29
are not part of the proposed service area. Id. at 551.
30
34
1 2 3 4 5 6 7
D.
Based upon AMR’s inquiries, the outlying fire districts did not
appear to need any additional ambulance transportation services. Id. at 552. E.
Calls
for
ambulance
transportation
received
via
the
911
(emergency) system are primarily covered by the Phoenix Fire Department (in its certificated area), the fire districts located mostly around the edges of the County, by Rural/Metro in the other unincorporated county areas and Fountain Hills, and then the other municipalities are covered by RFPs, or contracts, such
8
that emergency transports done through the 911 system are done by way of a
9
“very closed system.” Id. at 552-54.
10
F.
Rural/Metro is the largest provider of ambulance services in
11
Arizona. It is estimated to have more than 250 registered ambulances. It would
12
be almost impossible for the other certificated providers in the State to fill the
13
void that would exist if the Rural/Metro Corporation collapsed and was unable to
14
continue providing ambulance transportation services. Id. at 554-57.
15
G.
Distinguished from 911 system (emergency) transports, the IFT
16
needs of Maricopa are primarily provided by the Rural/Metro Group. Sun City
17
West Fire District does some, but they cannot do all in their service area. Most
18
of Sun City West Fire District’s IFTs come from the campus of the Del Webb
19
hospital facility included in AMR’s proposed service area, an inclusion done after
20
discussions with Sun City West Fire District (who did not intervene in this
21
proceeding or object to the inclusion). Id. at 555-57.
22
H.
AMR has proposed to provide ALS and BLS transports, both 911
23
and inter-facility, 24 hours a day, 7 days week. The response times proposed
24
are ones that AMR believed would meet or exceed the current providers existing
25
response times. Id. at 557-58.
26
I.
AMR sees a need for additional 911 transportation services in
27
Maricopa County.
Once granted a CON, AMR’s intention is to reopen
28
discussions with the current providers of 911 services, attempt to enter into
29
mutual aid agreements, offer to assist the existing providers, and offer itself as a
30
resource in the event coverage by the existing 911 contract based provider was 35
1 2 3 4 5 6 7
insufficient. It would look to take part in the RFP bid process, although this can take some time, because when the RFPs become available, they are held open for a period of time to allow responses, then there is a waiting period while they are considered, then after a contract is awarded, there is a “ramp up” period of time that might include required training, obtaining particular equipment, or other RFP requirements. Because of this, AMR was unable to say, for certain, that it would be able to provide 911 ambulance transportation services under a RFP
8
within its first full year of operation. That is why the ARCR was put together the
9
way it was. Id. at 558-63.
10
J.
AMR has a national model for public/private partnerships, for
11
example, staffing ambulances in partnership with a municipal fire department.
12
AMR would look for opportunities to do the same in Maricopa County. Id. at
13
563-65.
14 15 16
K.
911 transports are as important to AMR as IFTs. River Medical
does 80 percent 911 and 20 percent IFT. Id. at 565. L.
Over the last few years, the nature of IFT services has changed.
17
More freestanding emergency rooms exist, and hospitals do not all have the
18
same capacities and capabilities. This means there are more high acuity calls,
19
where a person is being moved from a hospital emergency room/urgent care
20
facility that does not have all the capacity it needs, to a more acute care facility.
21
This includes heart attacks and trauma patients. These patients need to be
22
moved more quickly; the transports are more urgent. Id. at 565-68.
23
M.
IFT users related to Valentine that before the Rural/Metro Group
24
consolidation, these critical IFT calls were handled in a timely manner, with a 30
25
to 45 minute to 1 hour response. The facilities could reach out to a second
26
provider if the first was unable to so respond. Since the consolidation, there is
27
no ability to look to a second provider and IFT arrival times seem to be getting
28
longer. While these arrival times are not regulated by ADHS, it is an important
29
patient care measure. Id. at 568-69.
30
36
1 2 3 4 5 6 7 8 9 10 11 12 13
N.
The increased importance of timely IFT arrival times is why AMR
has offered to have its CON require certain IFT arrival times. This is also why AMR’s proposed IFT arrival times differentiate between “urgent need,” “nonemergent,” and scheduled pickups. The respective times have been calculated based upon acuity of the situation and urgent versus non-urgent considerations. Even scheduled pickups must be done in a timely fashion in order to free up needed bed spaces in hospitals, including emergency rooms. Id. at 569-73. O.
AMR’s
Application
includes
enhanced
response
times
for
municipalities where AMR has a 911 contract and an established a suboperation station. This will allow ADHS to have oversight. Id. at 573-74. P.
None of the Intervenors have required IFT arrival times as a
requirement on their CONs. Id. at 574. Q.
To the extent Intervenors tried to compare response times or
14
financials associated with the River Medical CON, that service area is
15
comparable in size to Maricopa County, but there were only a little over 16,000
16
ambulance transports, on average, over the past couple of years. That CON
17
area is largely rural and very sparsely populated.
18
exclusive provider of the area long before American Medical Response, Inc.
19
purchased it. Id. at 575-77.
20
R.
River Medical was the
Both River Medical and Life Line use what is known as ePCR
21
technology (electronic patient care records). If AMR is granted a CON, it will
22
also use ePCR technology. Id. at 579.
23 24 25 26 27
S.
River Medical and Life Line both submit that data to the Arizona
PIERS System, which AMR will also do if it is granted a CON. Id. at 580. T.
River Medical and Life Line fully participate in the Premier EMS
Agencies Program. AMR will also participate if it receives a CON. Id. at 580-81. U.
River Medical and Life Line participate in other BEMSTS programs
28
directed at quality improvement and assurances, including the SHARE program
29
and EPIC-TBI. AMR will do the same. Id. at 581.
30
37
V.
1 2 3
Inc.’s bankruptcy filing, the AMR team had been looking at Maricopa for several years, monitoring customer service and ability to serve the area. Id. at 586-87. W.
4 5 6
While the AMR Application was filed quickly after the Rural/Metro,
In addition to speaking with hospitals and long term care facilities,
the AMR team also met with skilled nursing facilities, fire departments, city leaders and others interested in the local EMS system. Id. at 588. X.
7
AMR did not call the hospital, skilled nursing facility, etc.
8
representatives it spoke with.
9
forward because Rural/Metro is the only private provider in the County. Id. Y.
10
They indicated they were hesitant to come
Certain facilities Mr. Valentine spoke with did not want their names
11
used because they have contracts with the Rural/Metro Group for reduced rates,
12
and they expressed concern that if AMR was unsuccessful, they would be
13
subject to retaliation, including readjustment of rates. Id. at 603-04. Z.
14
AMR’s proposed response times are stated in terms of minutes
15
and seconds in order to avoid any confusion or manipulation of the second field
16
(proposing that 10 minutes, 59 seconds is still 10 minutes). Id. at 591-98. AA.
17
AMR’s proposed response times are equal to or faster than the
18
certificated response times of each of the Intervenors except ComTrans (which
19
only does behavioral health transports). Id. at 591-98; 600-01. BB.
20
In the event a CON is granted to AMR, it would require 30 to 45
21
days to “go live,” in order to handle matters such as ambulance inspection and
22
licensing and hiring and training employees.
23
services under a crisis mode or system collapse, American Medical Response,
24
Inc. could assist by moving in assets from around the country on an accelerated
25
basis. Id. at 671-72.
26
34.
Were there a need to provide
John Ford is currently an AMR employee; before that he spent
27
approximately 34 years working with Rural/Metro Corp., retiring for health reasons. In
28
his last 5 or 6 years with Rural/Metro, he was responsible for customer relations,
29
including contracts and working directly with the cities, local governments, and
30
legislature. Id. at 677-80. He testified as follows: 38
1 2 3 4 5 6 7 8 9 10 11 12 13 14
A.
Ford has been a member of the Arizona Healthcare Association
(AHCA) for approximately 22 years, including serving as a Board member until approximately 2012. foundation.
He remains a member and is the Vice President of its
This is the same organization that sent the Director the letter
admitted as AMR Ex. 26(A). Id. at 681-82. B.
AMR Ex. 52(B) is a good representation of the nursing homes in
Maricopa County. Id. at 685. C.
AMR Ex. 52(A) substantially lists the acute care hospitals in
Maricopa County. Id. at 686-88. D.
AMR Ex. 52(C) is a good representation of the urgent care centers
throughout Maricopa County. Id. at 688-89. E.
AMR Ex. 52(D) is a listing of rehabilitation hospitals in Maricopa
County and is substantially complete. Id. at 689-90. F.
Ford left Rural/Metro’s employment in February 2014. At the time,
15
he had been using his personal mobile phone for business purposes (after
16
Rural/Metro decided to discontinue providing mobile phones to employees in
17
November 2013). Following his departure, he continued to get phone calls from
18
his customers (users of IFT services), which he would then refer to Rural/Metro.
19
He received many calls from nursing homes and hospital personnel and some
20
calls from fire departments. All were expressing frustration with Rural/Metro.
21
This includes the Dignity Health, Scottsdale Lincoln Health System, what used to
22
be Abrazo - which is now part of Tenent Health Systems, the East Valley
23
Regional EMS group, and three of the West Valley fire departments - Avondale,
24
Goodyear, and Sun City. Id. at 691-95. These callers articulated the fact that
25
they had been receiving slower responses than they were used to, and they
26
were placing many calls for service that took over an hour for a pickup.
27
Previously, when Ford was there, Rural/Metro had tried to respond within a 30
28
minute to 1 hour mark. Ford estimates he received 40 to 50 of these calls. He
29
also learned that a young man continued to receive calls like this after Ford
30
39
1 2
returned his phone to Verizon. Ford talked to this person who related that “he was getting many, many calls . . . .” Id. at 695-96. G.
3 4 5 6 7
communicated with Ford regarding their frustration with the state of IFT services in Maricopa County as of 2014. The nursing homes appeared to get the slowest response of anybody, articulating averages of over an hour, and sometimes as long as three hours. Id. at 696-97. H.
8 9
The Arizona Healthcare Association (AHCA) membership also
Mr. Ford testified that he has seen a decrease in responsiveness
(for IFT arrivals) subsequent to the Rural/Metro bankruptcy. Id. at 698. I.
10
Ford has continued his relationships with the different fire chiefs in
11
Maricopa County. Since he left Rural/Metro, these individuals have told him
12
they have noticed either somewhat slower responses or units responding that
13
are not the ones dedicated to their cities; the city representatives have also
14
stated that because there is no other option (beyond Rural/Metro), they have to
15
deal with whatever the situation is. Id. at 698-701. J.
16
Ford, with his extensive background, personally believes Maricopa
17
County has a need for IFT arrival times to be committed to at a regulatory level.
18
He offered examples of why this is a medical necessity. Id. at 701-03. K.
19
Ford’s contacts have been telling him that in recent times there
20
have been more delays for critical IFT arrivals (such as active heart attacks,
21
strokes, and trauma) than there ever was before. Id. at 703-04. L.
22
During the September 2014 AHCA conference, AHCA members
23
stated their concerns/perceptions about current IFT services. They were having
24
problems getting phone calls returned and experiencing extended response
25
times. Id. at 705-06. M.
26
Ford disagreed with Rural/Metro’s attempt to characterize the 40 to
27
50 calls received after his February 2014 retirement as “occasional.” Id. at 725.
28
35.
Glenn Kasprzyk is Chief Operations Officer with Life Line Ambulance.
29
His EMS experience and background began in 1989 and he worked his way through all
30
field positions, and into various management positions. Part of his employment history 40
1 2 3 4 5 6 7
was with Rural/Metro, where he was the Operations Manager for Orlando, Florida. Currently, he is responsible for the day-to-day activities, both clinical and operational, of the Life Line operation. His Orlando employment provided him with experience in a large, urban market. Id. at 729-33. He testified to the following: A.
Serving on the Arizona Ambulance Association and the Arizona
EMS Council, Kasprzyk had a lot of connectivity with ambulance transport providers and partners across the state, and before AMR’s Application, a
8
general idea of the Maricopa market. As part of the Application, he had an
9
estimated 100 meetings with various people involved in Maricopa County’s EMS
10
system, including fire departments, hospital system representatives, government
11
officials, elected officials, and city managers. In general, everyone expressed
12
concerns about Rural/Metro’s fiscal health, the lack of a competitive bid process
13
since the consolidation of private providers, and degradation in services. There
14
was much interest in having another provider enter the system. Id. at 733-35.
15
B.
A specific meeting with Gilbert Hospital was especially remarkable
16
as Kasprzyk had never met with an official who exemplified so much frustration,
17
using expletives and describing Rural/Metro as “a terrorist organization.” The
18
CEO commented there was no partnership with Rural/Metro, he was concerned
19
about degradation in response service and Rural/Metro failed to communicate
20
with them when there as a “bypass” situation (providing bypass information is a
21
common practice of Life Line, which does a report so the bypassed facility will
22
have relevant information and feel like they are part of a partnership). AMR
23
would also do bypass reports. Id. at 735-41.
24
C.
Other users of ambulance transport services were reluctant to
25
specifically state their complaints and identifying themselves, due to the
26
Rural/Metro consolidation, given that it was now their sole option and concern
27
about what would happen to their future service. Id. at 742-43.
28
D.
Through a public record request, City of Gilbert records were
29
obtained (AMR Ex. 53 series), which relate to a regional group (Apache
30
Junction, Town of Gilbert, Queen Creek and City of Mesa) and their contract with 41
1 2 3 4 5 6 7
a Rural/Metro entity for 911 services.
This included departmental incident
reports from March 21, 2014, through April 20, 2014, raising concerns about the contracted provider, Southwest Ambulance (“SW” or “Southwest”) exhibiting a “trend” of its crews being more fatigued than usual, articulation of a safety concern associated with this, and the ambulance crews reporting they were short on staff.
This led to Mesa Fire not feeling safe sending a patient to the
emergency room without having one of its members ride along solely to spot the
8
fatigued driver and the statement that its community expectations of safe and
9
reliable EMS transportation were not being met. The reports also included a
10
problem with the rear doors of ambulances not opening, which the SW
11
paramedics stated was “common” and only being addressed when a problem
12
occurred, despite there being a repair for the issue.
13
included an unusually long response time under rather urgent conditions
14
because the ambulance that would have usually responded was not available, a
15
report of recurring problems with SW not restocking supplies, and SW “downing”
16
(reducing) crews. One of the Mesa Fire reports stated the belief that SW’s
17
“continued practice of ‘downing’ rides . . . is placing [its] patients’ welfare at risk.”
18
The reports included a SW ambulance not having medical equipment that is
19
required to be carried (an OB kit). Id. at 744; 748-60 (see also AMR Ex. 53D).
20
E.
The complaints also
The Gilbert records demonstrated these concerns were brought to
21
the attention of Rural/Metro (SW) representative Edward Podol on April 22,
22
2014; that on April 24, 2014, Mr. Podol was notified of the region’s intent to
23
renew its agreement with SW; that on April 28, 2014, Mr. Podol was more
24
formally notified regarding concerns about continuing safety issues as a result of
25
crew fatigue and ambulance door latches; and a May 3, 2014 email indicating
26
that SW’s insurance certificate on file had expired. Id. at 760-66 (see also AMR
27
Ex. 53E-H).
28
Gilbert Fire and Rescue indicating a systemic altered deployment of
29
ambulances.
30
observation was that it seemed “the situation is escalating.” Id. at 766-68 (AMR
The documentation also contained a June 3, 2014 email from Over the weekend, they had been down to one unit and the 42
1 2 3 4 5 6 7
Ex. 53I). Then, on June 12, 2014, SW (through Edward Podol) was notified of the intent to assess liquidated damages under the Regional Emergency Medical Transportation Services Agreement for failure to meet response times. Id. at 769-70 (AMR Ex. 53J).
Six days later Edward Podol wrote the Mesa City
Manager terminating the agreement. Id. at 770-71 (AMR Ex. 53K). Then, on June 25, 2014, another shortage of SW ambulances was observed. Id. at 77173 (AMR Ex. 53M).
Ultimately, in July 2014, the Regional Group formally
8
complained to Director Humble regarding “recent and significant service
9
declines” causing them to question SW’s commitment to the Region’s standard
10
of care, including “an unprecedented reduction of ambulances, which in turn
11
delayed patient care and compromised the safety of patients and EMS
12
responders.” Id. at 773-75 (AMR Ex. 53O). The Mesa Fire Chief (Harry Beck)
13
described this in an email to other members of the East Valley Consortium as
14
“our untenable situation,” which situation “is clearly off track.”
15
(AMR Ex. 53P).
16
F.
Id. at 775-76
In March 2014, Life Line Ambulance received a call from the
17
organizers of a “tough mudder” event indicating they had asked SW and PMT
18
Ambulance for ambulance coverage at a Mesa event, and had been told they
19
were not available. This was an unusual call as Life Line is located in Prescott.
20
Id. at 780-81.
21
G.
Life Line Ambulance has an existing relationship with Banner Del
22
E. Webb (Life Line’s base hospital for Wickenburg) and the Sun City West Fire
23
District.
24
AMR’s proposed service area with both to get an idea about the rough number of
25
IFT responses, and what the need for additional services might be. Sun City
26
West Fire District was comfortable with the inclusion and the transports from that
27
Banner Del E. Webb campus are quite limited. Id. at 789-94.
28
H.
Kasprzyk discussed including the Banner Del E. Webb campus in
AMR’s intended operations model is to staff ambulances with both
29
EMT/Paramedic teams and EMT/EMT teams. This does serve an advantage to
30
the customer base. It is important to provide the right level of care for each 43
1 2 3 4 5 6 7
unique situation. If greater resources are utilized than are appropriate, it can impact the system from a cost and resource availability perspective (that resource is then not available to a patient requiring a higher level of care). It costs more to staff an EMT/Paramedic unit than an EMT/EMT unit. Using mixed teams will allow AMR to be more efficient. Id. at 794-97. I.
Mr. Kasprzyk also introduced AMR’s estimated operations plan
(AMR Ex. 44). The plan encompasses both inter-facility and 911 markets. It
8
provides a detailed scenario for starting operations, including initial hiring and
9
management decisions, then securing an operation center with managerial, fleet,
10
and logistical support. It includes working collaboratively with local and regional
11
EMS committees and BEMSTS. Many of these steps are already underway.
12
The plan includes AMR’s commitment to become a CAAS accredited agency
13
(Commission on Accreditation of Ambulance Services), which is the gold
14
standard for the industry. This involves an intense third party review of the
15
operation in order to validate all processes, policies, and procedures. Life Line
16
is currently CAAS accredited. RT V4 at 804-11.
17 18 19
J.
None of the Rural/Metro Group entities operating in Maricopa
County are CAAS accredited. RT V9 at 2070. K.
Glenn Kasprzyk and John Valentine will initially manage the
20
operation until it is up and running and an operations manager is hired. Leslie
21
Mueller, the Regional CEO, will provide oversight at that level. Dr. Racht and
22
Dr. Warren Porter will support the local medical director who oversees clinical
23
services. RT V4 at 813-15. The operations plan includes an implementation
24
plan with benchmarks to hold people accountable. It includes a hiring plan that
25
is unique to the greater Phoenix/Maricopa County area and includes tapping into
26
American Medical Response, Inc.’s national database and online job offerings.
27
The plan includes contacting local community healthcare partners as soon as a
28
CON is granted and committing to leases for sub-operation stations in the areas
29
that have been generally described. Id. at 815-25. Training will start, dispatch
30
will be handled by Life Line Ambulance, and all vehicles will be put into service 44
1 2 3 4 5 6 7
with appropriate new equipment. Each ambulance will have a cellular telephone (in addition to having a radio) which allows the crews to talk to their base hospitals without using a two-way radio and tying up air time (and to keep the medical information more private). Id. at 825-33. The operation plan includes standards to enhance accountability and performance.
AMR wants to be
engaged and innovative; it wants to be a leader. It wants to push the standard bar higher, which AMR’s national level expertise supports. Id. at 833-34. The
8
operations plan does not include any 24 hour shifts. In a metropolitan, high-
9
performance area, 24 hour shifts are no longer the industry standard as data
10
shows that the fatigue associated can create patient care concerns. Instead,
11
AMR will use 8, 10 and 12 hour shifts. Id. at 835-37. The sub-operation station
12
locations are not set in stone, AMR intends a nimble system that can evolve to
13
accommodate changes and need in the entire system, including where the
14
volume of calls is coming from, time of day considerations, etc. Id. at 837-40.
15
The plan includes engaging with all EMS stakeholders, from ADHS/BEMSTS to
16
Rural/Metro. Id. at 839.
17
L.
Kasprzyk used “heat maps” (drive time maps) to check the plan
18
against estimated response times, which in his opinion it does support (the
19
response times are reasonably achievable). Id. at 841-47 (AMR Ex. 45A-H).
20
M.
AMR is not “cherry picking” or “cream skimming” through its
21
Application. Instead, it has applied to cover most of Maricopa County, including
22
outlying rural areas. Id. at 848.
23
N.
On cross-examination, Mr. Kasprzyk was asked about the parts of
24
the County where no color from the drive time mapping is shown. These are
25
sparsely populated and have been anticipated in the Applicant’s propose
26
response times by way of the 99 percent compliance within the 20 minute
27
fractile. Very few calls should come from these specific areas, and there are
28
other providers. If there appears to be a need for greater coverage in these
29
areas than currently appears, AMR will adjust placement of its sub-operation
30
45
1 2 3 4 5 6 7 8 9 10 11
stations/unit placement, which would necessarily adjust the look of the drive time mapping. Id. at 854-56; 901-04. O.
AMR’s plan for a robust, ongoing benchmarking and performance
improvement process encompassing all components of the EMS system from emergency medical dispatch through emergency department arrival was detailed. It will follow the same parameters that American Medical Response, Inc., nationally, focuses upon. Id. at 895-97. P.
AMR also has a plan to initiate guideline-based pre-arrival
instructions for all callers accessing 911 for assistance (as explained by Kasprzyk). Id. at 897-98. Q.
Kasprzyk is already part of the Regional EMS meeting group, both
12
he and John Valentine participate in their Regional EMS committees, Kasprzyk
13
is a member of the State EMS Council (Vice Chair and serving on the
14
Educational Committee as the Chair of Education). AMR will regularly attend
15
and participate in all regional and state EMS Council meetings. Id. at 899.
16
R.
AMR’s overall plan includes ensuring the maintenance and
17
improvement of ambulance service for rural communities, which is supported by
18
the fact that the proposed service area is not just for urban areas, it is designed
19
to provide backup/additional services for rural Maricopa County. Id. at 900.
20
S.
AMR’s service model is intended to be cost-effective, not resulting
21
in higher ambulance rates, due to the available synergies through River Medical
22
and Life Line, and due to the strength of American Medical Response, Inc.’s
23
corporate presence and resources, which will allow them to ensure they are
24
maintaining cost controls. Id. at 900.
25
T.
There is a need for enforcement of appropriate IFT arrival times,
26
especially related to cardiac, stroke, and trauma patients (as well as other
27
critical medical conditions that could require a patient to be moved in a timely
28
fashion). AMR is willing to be committed to this. It wants to be an innovator in
29
the field. Id. at 910-12.
30
46
U.
1 2 3 4 5 6 7
Inc.’s wholly owned subsidiary, Life Line. Kasprzyk detailed how the dispatching would occur and how AMR planned its ongoing benchmarking in performance and improvement process for the Maricopa operation, beginning with that dispatch and continuing through emergency department arrival. Part of this is Life Line being a CAAS organization. This also includes AMR’s intention to seek CAAS certification should it be granted a CON. RT V9 at 2063-71. V.
8 9
AMR intends to be dispatched out of American Medical Response,
AMR’s first year estimated call volume (projection) was calculated
to not cause substantial harm to the system or the existing providers.
It is
10
intended to encompass some growth, outlier calls, provide backup for unusual
11
circumstances (such as large scale incidents), and to be active in the entire
12
Maricopa system. For example, while the Buckeye Fire District currently covers
13
the large (rural) Gila area, if they approached AMR and asked it to partner, AMR
14
would not dilute the system by spreading the vehicles currently projected. It
15
would add resources, which American Medical Response, Inc. provides the
16
financial strength to do. RT V9 at 2071-75. W.
17
AMR intends to support the need for another IFT provider, and to
18
also support the 911 system’s needs by first being available at the request of
19
those in control of the closed system and eventually through obtaining municipal
20
911 contracts. The overall concern AMR sees is that in a county of 4 million
21
people, if something were to happen to impact the only existing private
22
provider’s ability to do the IFTs, and the bulk of the 911 transports, AMR would
23
be present and able to obtain the equipment and personnel to fully staff the
24
system Id. at 2071-76; 2078.
25
36.
Todd Jaramillo is the Ambulance Services Manager for BEMSTS and is
26
primarily responsible for overseeing regulatory matters such as this. Id. at 914. He
27
testified as follows:
28 29
A.
Administrative Incomplete Notices are routine (not unusual) in
applications such as this. Id.
30
47
B.
1 2
application process. Id. at 915. C.
3 4 5
His office is charged with assisting applicants through the If the Bureau recommends different rates and charges than are
detailed in an applicant’s ARCR, there is no need for the applicant to redo the ARCR submitted. Id. at 919.
6 7
D.
AMR submitted all basic information required by R9-25-902. Id.
E.
AMR’s description of its proposed service area (the final, amended
8
version) is in an acceptable form for BEMSTS, and is consistent with ADHS’
9
historic interpretation of statutory requirements. Id. at 921.
10
37.
Edward Racht, M.D. is Evolution Health and American Medical
11
Response, Inc.’s Chief Medical Officer. Dr. Racht has served on the CAAS Board. He
12
is the clinical conscience of the organization, it is his job to evaluate the literature, best
13
practices, and available data, and to then work with the organization’s clinical
14
leadership on education, problem solving, and developing best clinical practices. Id. at
15
925-28 (see also AMR Ex. 34). He testified as follows:
16
A.
The cornerstone of American Medical Response’s best clinical
17
practices philosophy is that of using the scientific evidence as it evolves,
18
applying that evidence to patient care so care providers have the tools to deliver
19
pre-hospital care to positively impact their patients in the best possible way.
20
With Dr. Racht’s assistance, American Medical Response participates in the
21
developing art and science of pre-hospital care. Id. at 928-31; 934-36.
22
B.
Racht discussed examples of the company’s attention to data
23
collection, analysis, and pushing the clinical information down to the street level
24
(local practices).
25
evidence on a clinical care issue is growing, it is critical to collect that data and
26
provide it in an appropriate manner to the scientific community in order to
27
analyze what makes a difference in patient care, which philosophy American
28
Medical Response adheres to. He testified to the multiple uses of the data
29
collected, including improvement in patient care, using the data to benchmark
30
performance in various communities, seeing how often local clinical leaders
He testified that if an organization knows the available
48
1 2 3 4 5 6 7
access that data (from a management standpoint), supporting research, examining resource utilization at the clinical level, looking for trends, providing public education, and for professional interaction and support. Id. at 942-49. C.
One of Dr. Racht’s examples was a study examining overall
survival to hospital discharge from cardiac arrest, showing that overall American Medical Response, Inc. practices at an 11.3% survival to hospital discharge, where the national average, collected through the CARES (Cardiac Registry to
8
Enhance Survival) program, is 10.3%.
9
neurological function is also excellent. American Medical Response, nationally,
10 11
Its statistics on survivability with
showed a 9.3% score, versus the 7.8% average. Id. at 931-33 (AMR Ex. 35K). D.
Dr. Racht supported American Medical Response, Inc.’s plan for
12
adopting clinical guidelines and operating procedures for time sensitive illnesses
13
consistent with best practice guidelines. This is central to the organization’s
14
clinical care philosophies. He offered specific examples such as incorporation of
15
“discomfort” into pain analysis, as discomfort is not always the result of pain.
16
Another is the focus upon safe and effective maintenance of airway and
17
ventilation, which includes evaluation and management of a patient’s airway and
18
techniques to enhance the same.
19
standards for, assuring patient safety not only in terms of making sure they
20
receive the right drugs and tubes are placed in the correct position, but infection
21
control, and rapidly recognizing patient deterioration. Id. at 934-39; 946-47.
22
E.
Another example is the focus on, and
Dr. Racht testified that he has worked in numerous capacities with
23
many different kinds of pre-hospital care providers, both public and private, and
24
he has not experienced any of those organizations being more collectively
25
focused than American Medical Response, Inc. is on making improvements in
26
patient care, including attention to sharing its date with people outside the
27
company to move the science of EMS forward. Id. at 958-62.
28
F.
While Dr. Racht does not engage in day-to-day oversight of all
29
local operations, he does work closely with the clinical managers and medical
30
directors who provide that oversight to the local operations to ensure good 49
1 2
science “trickles down.” AMR will be included in this and thereby receive the benefit of his expertise. Id. at 965-66. G.
3 4 5 6 7 8 9 10
Dr. Racht also testified to how AMR would establish a cost
effective business model from a clinical perspective: there is a limited pool of money and examining best practices from a cost effective approach is part of what AMR does (examples given). Id. at 967-68. Witnesses called by BEMSTS 38.
Terry Mullins was called as a witness on behalf of ADHS, and has been
Chief of BEMSTS for 8½ years. He testified as follows: A.
He helped develop the Bureau’s “guidance document” (AMR Ex.
11
1F), which includes the Bureau’s response to a perceived public misconception
12
that the CON process was designed to limit the number of ambulance services.
13
This document clarifies that “public necessity” does not mean the existing CON
14
holder is not meeting the needs of the community, but instead that an identified
15
population needs or requires all or part of the proposed services. Likewise, the
16
primary focus in evaluating public necessity is upon the interests of the public,
17
not upon protecting the territory or property rights of the current providers in the
18
area. RT V5 at 984-90.
19
B.
The witness introduced the Bureau’s exhibits “[t]he majority of
20
[which] relate to the Department’s concern about Rural/Metro’s financial and
21
operation stability and fit and proper status prior to, during, and following the
22
bankruptcy of the company.” Id. at 997.
23 24 25
C.
Bankruptcy of a CON holder in Arizona is unusual, Mullins could
not recall any CON holder the size of Rural/Metro ever declaring bankruptcy. Id. D.
The Rural/Metro bankruptcy caused ADHS to be concerned as to
26
whether Rural/Metro would be capable to meet its CON obligations in the State.
27
There was also concern about Rural/Metro’s failure to meet certain response
28
times in several of its CONs, and concerns regarding the Bureau’s ability to
29
obtain requested documentation from Rural/Metro. The Director believes this
30
information is germane to AMR’s Application and should be considered in 50
1 2
connection with the determination of public necessity, and this includes issues existing outside of the service area proposed by AMR. Id. at 997-99. E.
3 4 5 6 7
By a letter of July 26, 2013 (DHS Ex.1), the Director requested
specific information from Rural/Metro relating to its financial stability and what resources would be made available to Arizona operations. The Director and Bureau were concerned about how financial issues outside of Arizona might affect Arizona operations. Soon thereafter, the Director sent a second letter
8
(DHS Ex. 2) asking whether any Arizona contracts were part of the unprofitable
9
contracts mentioned in Rural/Metro’s bankruptcy filing. Id. at 999-1003. F.
10
Rural/Metro’s response (DHS Ex. 3) did not answer all of the
11
questions posed in those first two letters, including the negotiation of
12
unprofitable contracts, the possible impact on Rural/Metro’s Arizona operations,
13
and other requested financial information.
14
response time information. Id. at 1004-06. G.
15
Rural/Metro did provide 911
Rural/Metro’s information regarding 911 response times for the
16
one year immediately preceding the bankruptcy demonstrated that several of its
17
Arizona CON holders were out of compliance. Even though some of those CON
18
holders have service areas that do not overlap with AMR’s proposed service
19
area, the Director believes all should be considered as relevant to the public
20
necessity determination. Those CON holders who were out of compliance with
21
their response time performance were identified as Kord’s Southwest (CON No.
22
54), Canyon State Ambulance (CON No. 58), Rural/Metro (Yuma) (CON No. 65),
23
Southwest Ambulance (CON No. 86), and Rural/Metro (Maricopa) (CON No.
24
109).
25
significantly overlapped by AMR’s proposed service area. Canyon State has a
26
small overlap. Id. at 1006-13 (see also DHS Ex. 3).
27
Both Southwest No. 86 and Rural/Metro No. 109 have service areas
H.
On September 19, 2013, Mullins again wrote Rural/Metro to notify
28
it that the information requested to determine whether Rural/Metro remains “fit
29
and proper” had not been entirely provided by Rural/Metro and that the Bureau
30
51
1 2 3 4 5 6 7
was opening investigations with regard to the response time failures (DHS Ex. 4). Id. at 1014-15. I.
As a result of that investigation, four of the complaints were
determined to be substantive (the CON holder was determined to have not met its response times and to have therefore been in violation of governing Arizona Statutes, and to have demonstrated substandard performance) - the complaints regarding Kord’s Southwest (CON No. 54), Rural/Metro (Yuma) (CON No. 65),
8
and Southwest (Maricopa) (CON No. 86), and with regard to Area C of its CON,
9
Rural/Metro (Maricopa)(CON No. 109) (DHS Ex. 5, 7 - 9). Id. at 1016-37; 1095.
10
J.
BEMSTS’ analysis was that if Rural/Metro failed (partially or
11
completely) the ambulance transport resources for emergency responses in the
12
markets served by Rural/Metro entities would be reduced, and in a few situations
13
eliminated. IFTs would be very heavily impacted. While the Bureau believes it
14
would have little problem finding agencies to step-up and provide temporary
15
authority for 911 service in Maricopa County, access to the Rural/Metro assets
16
(vehicles and equipment) was uncertain due to the bankruptcy. And filling in IFT
17
responses would be problematic, the Bureau did not know how long it would take
18
to bring in sufficient assets to meet market demand. The IFT portion is a “large
19
volume” issue in Maricopa County, so the Bureau expects they would have more
20
difficulty, there (DHS Ex. 10). Id. at 1037-40.
21
K.
As of August 9, 2013, Rural/Metro had failed to make payments
22
due to the City of Chandler under their contract for 911 ambulance
23
transportation services (DHS Ex. 11). Id. at 1041-42.
24
L.
Rural/Metro’s financial difficulties causes ADHS to be “very
25
concerned,” because of its very large footprint - especially in Maricopa, Pima
26
and Pinal Counties.
27
cause significant community impacts” (DHS Ex. 12). Id. at 1046-47.
28
M.
Rural/Metro’s financial problems have “the potential to
Rural/Metro requested a 45 day extension to ADHS’s deadline for
29
complete ARCRs to be submitted for each Rural/Metro subsidiary CON within 60
30
days of conclusion of the bankruptcy. Mullins allowed an additional 31 days. 52
1 2 3 4 5
However, Rural/Metro did not comply with that deadline, instead requesting another extension of time. The Bureau allowed that extension but opened an investigation for each of the Intervenors to determine whether each remains “fit and proper” as Rural/Metro emerges from bankruptcy (DHS Ex. 17 - 21). That investigation remains open, to date. Id. at 1055-65. N.
6 7
BEMSTS was notified by the East Valley Consortium (Apache
Junction, Gilbert, Queen Creek, and Mesa) regarding problems they were having
8
with their regional medical transportation services agreement, including
9
Rural/Metro’s Regional Director, Edward Podol’s termination of the contract on
10
June 18, 2014, and issues brought to the attention of Rural/Metro’s President,
11
Scott Bartos, regarding contract performance (DHS Ex. 22). Id. at 1065-68. O.
12
ADHS/BEMSTS was also made aware of the fact that the
13
Superstition Fire & Medical District, as of June 26, 2014, had “serious concerns
14
over a growing trend of poor performance and ambulance service provided by
15
the Rural-Metro Corp...., including an alarming rate of non-compliance” with
16
contractual requirements, failure to meet response time requirements, arbitrarily
17
taking units out of service, all of which suggested that the company was in a
18
financial and operational turmoil (DHS Ex. 23). Mullins considered this to be in
19
line with communications received from the East Valley Consortium. Id. at 1069-
20
72.
21
P.
On July 1, 2014, the Superstition Fire & Medical District wrote
22
Director Humble asking for his “support and attention to a very serious matter
23
regarding
24
requirements of our regional service agreement.” The Fire Chief observed that
25
Rural/Metro appeared “more focused on cutting corners and canceling contracts
26
than quality of care and customer service . . . .” He stated that his community
27
and residents had “grown weary of the chaos that appears to be pervasive in
28
[the Rural/Metro] organization” (DHS Ex. 24).
29 30
Q.
Rural-Metro
Corporation’s
inability
to
adequately
meet
the
By way of a letter dated June 10, 2014, the City of Mesa’s Fire
Chief alerted ADHS to concerns about Southwest Ambulance’s performance 53
1 2 3 4 5 6 7
under the regional emergency medical transportation services agreement, including the contract possibly not being renewed, “recent and significant service declines” causing the contracting agencies “to question Southwest’s commitment to the region’s standards of care.” He detailed “an unprecedented reduction of ambulances, which in turn delayed patient care and compromised the safety of patients and EMS responders.” The attachment highlighted such details as “an unprecedented reduction of ambulances available for dispatch began occurring
8
on a daily basis” beginning in March 2014 - with between 2 and 5 being taken
9
out of service per day, reports of excessive fatigue of ambulance staff and
10
potential
11
communication equipment, with defective equipment (i.e. Southwest taking 18
12
months to replace all of the defective latches), and “ongoing supplies restock
13
delays and lack of communication regarding restock” (DHS Ex. 27).
14
R.
safety concerns, ambulances being sent out without proper
The Town of Gilbert also notified Director Humble of its belief that
15
Rural/Metro’s “consolidation and financial uncertainty [had] created concerns . . .
16
.” The Town Manager stated it had become clear that to properly provide the
17
higher level of service Gilbert residents deserved, they need more than one
18
option (DHS Ex. 28).
19
S.
On July 26, 2014, Director Humble, Mullins, and the East Valley
20
Consortium representatives met.
21
gave several examples of recent declines in ambulance service levels (BHS Ex.
22
29). ADHS’s response included the fact that the Department “continues to have
23
concerns about Rural/Metro’s operational and financial stability following the
24
conclusion of the bankruptcy process . . . .” Id. at 1081-84.
25
T.
During this meeting, those representatives
While Mullins observed that since September 2013 there had been
26
“steady progress” with regard to response time issues (Rural/Metro Group
27
showing compliance on a month-to-month basis), as of Mullins’ September 29,
28
2014 testimony, Rural/Metro had not yet provided to ADHS/BEMSTS all of the
29
specific financial/operational information requested by way of Director Humble’s
30
July 26, 2013 and August 6, 2013 letters. This included information about a 54
1 2 3 4 5 6 7 8 9
Rural/Metro operations contract issues with Santa Clara (California) County and its failure to meet the debt payment; a description of the Rural/Metro assets, liabilities, revenue, and debt, including segment reporting for its Arizona operations; an assessment and description of current assets, including cash; whether cash was adequate to cover cash outflows, and if it was not, what the plan was for addressing that; and what efforts had been taken to ensure events outside of Arizona would not have a negative impact on the Rural/Metro operations in Arizona. Id. at 1089; 1092-94. U.
In the event of a Rural/Metro collapse, BEMSTS does not know if
10
there would be sufficient ambulances in Arizona to cover its transportation
11
needs. Id. at 1099-100.
12
V.
Were it to be brought to Mullins’ attention that Rural/Metro’s post-
13
bankruptcy cash flow projection of $26 million for 2014 was not on track to be
14
fulfilled, this would be a matter of concern. Id. at 1103-04.
15
W.
Regardless of renewals of the Rural/Metro Group’s CONs (some
16
for just one year as opposed to the normal three year cycle), ADHS “has
17
developed and continues to have a concern about Rural/Metro’s financial and
18
operational stability.
19
components of that remain to this day.” Id. at 1109.
20
X.
That concern began in August 2013 and has - and
Mullins was informed, by John Karolzak, that Rural/Metro would be
21
closing some operations in Indiana based on volume concerns and whether the
22
communities were willing to renegotiate the contracts to make them more
23
profitable or achievable for Rural/Metro. Because this dealt with some rural
24
areas, this did cause Mullins additional concern. Id. at 1114-15.
25
Y.
In connection with Rural/Metro’s purchase of PMT (CON No. 71),
26
American Ambulance (CON No. 75), Com Trans (CON No. 46), and Canyon
27
State (CON No. 58) in 2012, Rural/Metro would have had to have to represent
28
that it would be able to run financially healthy ambulance companies. Id. at
29
1122-23.
30
Witnesses called by Rural/Metro 55
1 2 3 4 5
39.
Michael Evans, CPA was called by Intervenors to testify that AMR would
not be able to achieve its financial projections due to under reported expenses and to provide his calculations regarding the adverse financial impact each Intervenor would suffer if AMR’s Application was granted. He testified as follows: A.
Evans prepared Rural/Metro’s ARCR reportings for both calendar
6
years 2012 and 2013, during the same period of time that the “difficulty
7
appropriately accounting for revenue” as referenced in the Farber Bankruptcy
8
Declaration as one of the reasons leading to the bankruptcy - a $60 million error
9
occurring during the June 2012 through March 2013 accounting period (AMR Ex.
10 11
18, ¶31). RT V6 at 1317-20. B.
Evans’ opinion that AMR will not be able to achieve its financial
12
projections was based on his estimates of under reported expenses, primarily a
13
discrepancy between the corporate and regional support allocations done in
14
River Medical’s most recent (2013) ARCR and AMR’s projected first year ARCR
15
reporting and his comparison of River Medical’s billing expenses from its 2013
16
ARCR and AMR’s projected first year ARCT. RT V5 at 1180-90.
17
C.
Evans’ adverse financial impact analysis was based largely on
18
information provided to him by Edward Podol, the Rural/Metro representative,
19
who provided the lost transport numbers, calculated the possible staffing
20
reduction, and provided the average miles per transport.
21
knowledge regarding the processes or facts used to obtain these numbers. RT
22
V6 at 1396-98.
23
D.
Evans had no
Likewise, Evans relied on the financial data provided to him by
24
Rural/Metro to prepare the Rural/Metro Group’s ARCR (2013) reportings that
25
were used in the adverse financial impact analyses. Id. at 1312-13.
26
E.
Evans’ adverse financial impact exhibits (the Rural/Metro Ex. 2
27
series) calculated the return on gross revenue for each entity, which Evans
28
testified is a performance metric used by ADHS to measure the profitability of
29
each ambulance company. Id. at 1240-41. His calculations regarding the rate
30
increase he testified would be required also focus on “return on gross revenue.” 56
1 2 3 4 5 6 7 8 9 10
R/M Ex. 2G.
He characterized return on gross revenue as “the most pertinent
piece of data.” RT V6 at 1284. Likewise, his summaries of financial impact focused on percentage of net income lost. R/M Ex. 3A-F. F.
The four Intervenors that are part of the Phoenix Rate Group,
Southwest Ambulance (Maricopa), PMT Ambulance, American Ambulance, and Rural Metro Ambulance (Maricopa) (collectively, “the Phoenix Rate Group Intervenors”), had a -1.36% return on gross revenue in 2013. RT V6 at 1286. G.
After adjustments for projected lost transports to AMR, the Phoenix
Rate Group Intervenors anticipated a -3.79% return on gross revenue. Id. H.
To return to the pre-existing -1.36% return on gross revenue, the
11
Phoenix Rate Group Intervenors anticipate needing to apply for a 9.16% rate
12
increase. Id. at 1289.
13
I.
Evans understood AMR’s first year of operations would not be any
14
earlier than 2015, yet his financial impact analysis still utilized the Intervenor’s
15
2013 financial reportings to predict 2015 results if AMR is allowed to enter the
16
Maricopa County market. He did not take population growth, growth of the 65
17
year old and older segment of the population, or the 2.1% rate increase all but
18
one of the Intervenors received (automatically) after 2013 into consideration. He
19
did not factor in the 2013 decreases in revenue done on each of the Intervenors’
20
2013 ARCRs in order to balance out the 2012 income over reporting. For PMT
21
alone, this involved a more than $3.3 million reduction in net revenue. RT V6 at
22
1330-36. He did not factor in any claimed “one-time” fee adjustments associated
23
with the Rural/Metro bankruptcy which would have reduced expenses. He made
24
no consideration for any changes to corporate overhead that the Rural/Metro
25
Group might have in calendar year 2015 as a result of expenses discharged
26
through the bankruptcy – including the interest on debt, he did not attempt to
27
account for any savings associated with Rural/Metro changing who does its
28
billings, no adjustments were made for Southwest giving up its large rented
29
facility (its Mesa compound), and he could not say what part of the
30
approximately $2.65 million in rented real estate expense shown on the 57
1 2 3 4 5 6
Southwest 2013 ARCR that facility contributed to. Even while agreeing that these changes might or would occur, he carried all of them forward from 2013 to 2015 without adjustment. Id. at 1339-53. While admitting that adjusting these items would adjust the return on gross revenue, he stated that these line items were irrelevant, eventually calling them “noise.” For example, see RT V7 at 1419 and 1428. J.
7
Southwest, PMT, and Rural/Metro all carried a negative return on
8
revenue during calendar year 2013 despite having no competition for IFT calls
9
or 911 contracts outside of the Rural/Metro organization.
Evans added that
10
“historically” each had made money.
However, he agreed that “historically”
11
meant before 2012, the year that Rural/Metro completed its final purchase
12
effecting the consolidation of essentially all the private ambulance transportation
13
service companies holding CONs in Maricopa County. RT V6 at 1366-70.
14
40.
Steven Varner, Managing Director with Alvarez & Marsal, and head of its
15
Los Angeles restructuring and turn around practice, was called by Rural/Metro to
16
comment on Mr. Cook and Dr. Drake’s reports and opinions, and his evaluation of
17
Rural/Metro’s financial performance since emerging from bankruptcy on January 1,
18
2014. He testified as follows:
19
A.
Varner was paid $750 per hour by Rural/Metro for his engagement
20
in connection with the hearing. His firm was paid more than $4.5 million by the
21
Rural/Metro Corporation to help it successfully restructure itself and emerge
22
from the bankruptcy. Id. at 1446; 1608-10.
23 24 25
B.
Varner does not hold an MBA, is not a CPA or CMA, and does not
hold a Ph.D. in finance. Id. at 1610-11. C.
Varner has never worked on any kind of reorganization in Arizona’s
26
regulatory ambulance environment. He also did not testify, in describing his
27
background and expertise, to assisting any other ambulance company with a
28
reorganization. Id. at 1440-45; 1607.
29 30
D.
To reach his conclusions regarding Rural/Metro’s financial
performance, which he characterized as positive, he relied upon adjusted 58
1 2 3 4 5 6 7
EBITDA, which he characterized as important to assess a company’s fiscal health, and “the typical measure of both public and private companies”. His primary criticism of Mr. Cook and Dr. Drake were their failure to follow the type of adjusted EBITDA analysis that he proposes is appropriate. Id. at 1532-33; for example, see also id. at 1473-81. E.
The adjusted EBITDA analysis adds back in what Varner called
“non-recurring charges” (approximately $4.4 million in restructuring costs), even
8
though those monies were actually spent. Id. at 1486. Adding back in $4.4
9
million spent makes Rural/Metro Corporation’s financial situation look better.
10
F.
Varner also applied an adjusted EBITDA calculation to operating
11
cash flow, claiming Mr. Cook had materially miscalculated cash flow because he
12
failed to add back in money that had been spent (the “non-recurring” charges)
13
and he failed to consider restricted monies (even though those monies are
14
restricted). By adding back in these monies, Varner concluded Rural/Metro had
15
a positive cash flow for the first quarter. Id. at 1482-85. He did a similar “add
16
back” for other financial comparisons, calling Cook’s failure to do the same a
17
“math error.” Id. at 1486. His criticisms of Dr. Drake’s report were similar. For
18
example, see Id. at 1503-07.
19
G.
Rural/Metro is paying approximately $30 million in cash interest
20
annually. This is secured by substantially all of the assets and equity interests
21
in all of Rural/Metro’s subsidiaries. Id. at 1521-22.
22
H.
Varner agreed that to date Rural/Metro’s revenue is less than the
23
financial projections it provided to the Bankruptcy Court, unless one applies
24
adjusted EBITDA principles, which puts it close to performance. Id. at 1553-54.
25
I.
Even though the Rural/Metro bankruptcy quarterly reports did not
26
use the word “non-recurring” when discussing the $4.4 million worth of
27
professional fees and other restructuring related expenses that Varner added
28
back in to Rural/Metro’s finances, he said that he feels comfortable adding them
29
all back in. Id. at 1559-60.
30
59
J.
1 2 3
agree that Rural/Metro had an operating cash flow deficit of -$6.3 million in the first quarter of 2014, based on the calculations described above. Id. at 1566-67. K.
4 5 6 7
Varner agreed the company would need $44 million in cash during
2015 to fund the capital expenditures and pay down debt. When asked how the company would achieve that given its current numbers, Varner referenced adjusted EBITDA. Id. at 1573-74. L.
8 9
Despite its reporting to the Bankruptcy Court, the witness would not
Regulatory agencies such as the Security and Exchange
Commission (SEC) require GAAP style accounting so there are consistent
10
measurement of financial metrics.
EBITDA allows management a certain
11
amount of discretion about what numbers are pulled back in and what numbers
12
are not. Id. at 1586-87.
13
41.
John Karolzak has been with Rural/Metro for 30 years and became
14
Rural/Metro’s Vice President of Operations for Arizona approximately 8 to 10 weeks
15
before the date of his testimony. He testified as follows: A.
16
Before Rural/Metro’s August 2013 bankruptcy filing, he was the
17
South and Southwest Zone President. At the time of the bankruptcy filing, he
18
became the National Chief Relations Officer. Id. at 1635. B.
19
Rural/Metro was formed in 1948 in Maricopa County and presently
20
provides emergency and IFT services in 21 states. Id. at 1638-39; AMR Ex. 23
21
at 3760. C.
22 23
In his current position, Karolzak has overall responsibility for the
ambulance operations of the Intervenors. RT V7 at 1638. D.
24
In preparation for the hearing, Karolzak directed his staff to collect
25
emergency response time data for the Intervenors for the 12-month period from
26
August 1, 2013, through July 31, 2014. This includes the time Rural/Metro was
27
in bankruptcy and seven months after emerging from bankruptcy. Id. at 1672-
28
77.
29 30
60
1 2 3 4 5 6 7
E.
An analysis of the data indicates that Intervenors were meeting or
bettering its required response times in all instances over the 12-month period. Id. at 1679-87; AMR Ex 8A-E. F.
During the first eight months of 2014, the Rural/Metro Intervenors
provided inter-facility transportation services to 915 facilities, doing more than 100,000 transports. Id. at 1704-05. G.
Intervenors cover hundreds of standby events every year, including
8
for example, the Arizona Coyotes games, all events at the University of Phoenix
9
Stadium, U.S. Airways Arena, marathons, triathlons, and swimming events.
10
Intervenors have never been unable to cover a standby event, including the
11
“tough mudder” event described previously. Id. at 1737-40.
12
H.
Intervenors have procedures and training in place to address crew
13
fatigue. Unit hour utilization was not indicative of the crews being overworked,
14
but Intervenors re-inserted 1½ units into the system. Id. at 1764-67.
15 16 17
I.
The door latch issue described previously was a manufacturing
defect and was corrected. Id. at 1768-69. J.
On one occasion, there was an issue regarding restocking
18
supplies. An investigation revealed that the crew forgot to submit a form to
19
request more supplies. The crew was counseled and this was considered an
20
isolated incident. Id. at 1771-72.
21
K.
The “downing” of ambulances was a common practice based on
22
the overall system used by Rural/Metro. Additional personnel report to work, on
23
a volunteer basis, so that any shortages resulting from crew members not
24
reporting, due to illness or other exigent circumstance, may be filled. Once the
25
shift is fully staffed, volunteer extra staff are permitted to home. Id. at 1772-74.
26 27 28
L.
On one occasion, a crew member failed to stock an “OB Kit.” The
crew member was counseled. Id. at 1775. M.
The delivery of the insurance certificate to the Town of Gilbert was
29
delayed by a couple of days, but the insurance coverage never lapsed. Id. at
30
1777-78. 61
N.
1 2 3 4 5 6 7 8 9 10
Karolzak agreed that to fully evaluate the 911 and IFT needs of a
given system, one of the things a provider would look at is the history of transports and calls for service; he also agreed that the Rural/Metro Group-with regard to private providers, is in exclusive control of that historic information. Likewise, until AMR enters the system, it will not be able to accumulate its own data.
When asked whether Rural/Metro would share its raw data regarding
those issues with AMR should they be granted a CON, the answer was “no.” Id. at 1792-99. O.
For AMR to enter the Maricopa County 911 call system, the
following would need to occur:
11
(i)
12
dispatching some of the calls from the City to AMR;
13
(ii)
14
service, absent an extraordinary or isolated event, AMR would
15
need to obtain a 911 municipal contract; or
16
(iii)
17
by the municipal contracts, would need to dispatch 911 calls to
18
AMR.
19
Id. at 1799-808.
20
P.
The City of Phoenix would have to decide it wanted to start As most of the other municipalities have contracts for 911
Rural/Metro, which dispatches the county area not covered
Mr. Karolzak testified it is unlikely the City of Phoenix would
21
dispatch any normal day-to-day 911 calls to AMR, the Intervenors currently
22
cover all municipalities via 911 contracts except for the City of Glendale, which it
23
is currently in negotiations with. Finally, Rural/Metro would not dispatch any 911
24
calls from the County to AMR.
25
ambulance transport system is therefore “closed,” and that if a separate private
26
provider was granted a CON, until municipal contracts come up for bid, the only
27
ability to provide 911 ambulance transport services would be through mutual aid
28
agreement requests or some extraordinary isolated event. Id.
29 30
Q.
As such, Karolzak agreed that the 911
As with AMR’s representatives, Mr. Karolzak stated there is no
guarantee the Rural/Metro Intervenors would bid on every single municipal RFP 62
1 2 3 4 5 6 7 8 9 10 11 12
issued, that Rural/Metro would need to evaluate the contract, and if it had unrealistic terms, Rural/Metro would go back to the entity issuing the RFP to discuss that fact. Id. at 1809-11. R.
Karolzak’s comparison of Intervenors’ “achieved” response times
(R/M Ex. 8A - E) to AMR’s proposed CON fractile response time tolerances was an apples-to-bananas comparison, as one was mandatory minimum response times and the other was achieved response times. Id. at 1813-16. S.
Karolzak did not know how many of Intervenor Canyon States’
transports are done in Maricopa County. Id. at 1817-18. T.
The IFT needs of Maricopa County are not comparable to the IFT
needs within River Medical or Life Line’s certificated service areas. Id. at 1821. U.
While BEMSTS stated the limits on discussing one of its active
13
investigations only applied to the agency, that the subject could comment,
14
Karolzak refused to state the nature of what was at issue in BEMSTS’ open
15
investigation into Intervenors. Id. at 1822-23.
16
V.
Labor is Rural/Metro’s greatest expense. Id. at 1827.
17
W.
The Rural/Metro Group, in 2013, did approximately 220,000
18
transports in Maricopa County. Rural/Metro owned entities did approximately
19
300,000 in Arizona. Id. at 1828-29.
20
X.
Currently (and in 2012 and 2013), Rural/Metro Ambulance,
21
Southwest Ambulance, PMT Ambulance, Southwest Ambulance & Rescue all
22
use 24 hour shifts for ambulance staff. Id. at 1833-34.
23 24 25
Y.
Karolzak was unable to state which municipal contracts held by
Rural/Metro entities have performance bonds. Id. at 1835. Z.
The only two large acquisitions done by Rural/Metro Corporation
26
during calendar year 2012 that Karolzak is aware of were the Arizona acquisition
27
(PMT, Canyon State, American Ambulance and ComTrans) and a California
28
acquisition. Id. at 1841-42. These acquisitions were included in the causes for
29
Rural/Metro’s bankruptcy. AMR Ex. 18 (Farber Declaration), ¶33.
30
63
AA.
1 2 3 4 5 6 7 8 9
With regard to Maricopa County capital expenditures, the
Intervenors have approximately 248 registered ambulances, which generally have a 5 to 7 year life (certain municipal contracts may require quicker replacement because they want new vehicles). Without equipment, these cost approximately $125,000 each.
The heart monitor, stretcher and supplies
required would be about another $75,0000. The witness did not know how many new ambulances had been put into place in Arizona during 2014. Id. at 184347. BB.
Rural/Metro Corporation also provides fire services in Arizona
10
(Maricopa, Pima, and Yuma Counties).
11
$250,000, a refurbished ladder truck costs approximately $375,000. He believes
12
these trucks have a useful life of up to 15 years. Id. at 1850-52.
13
CC.
A fire truck costs approximately
Karolzak agreed that Southwest Ambulance (CON No. 86) has
14
saved money, going forward, by departing its Mesa campus which costs
15
approximately $200,000 per month. Id. at 1848.
16
DD.
Southwest Ambulance employees are part of the International
17
Association of Fire Fighters, Local I-60 (union) working under a collective
18
bargaining agreement.
19
Rural/Metro bankruptcy. Id. at 1854-55.
20
EE.
That union is involved in active litigation in the
Karolzak testified that the bankruptcy litigation with the union is not
21
causing Rural/Metro any ongoing bankruptcy related attorney fees because that
22
cost is being handled by in-house counsel. Id. at 1860.
23
FF.
In an Arizona Republic September 12, 2014 article, Glendale Fire
24
Chief Burdick was quoted as saying more Rural/Metro ambulances seem to be
25
responding to calls without paramedics, which means the City of Glendale
26
paramedics often have to care for patients needing higher acuity care, such as a
27
heart monitor or IV, and that because of this reduction in paramedics, Glendale
28
Fire’s units cannot respond to new calls until the hospital assumes care. Chief
29
Burdick said this was a reduction in service from the level they were used to
30
seeing. Id. at 1860-62. 64
GG.
1 2
applied for a CON. Id. at 1879. HH.
3 4 5 6 7
During the course of the hearing, the Glendale Fire Department One of the first steps in Rural/Metro Corporation’s reorganization
was to lay off 90 employees, including some in Arizona on April 16, 2013. At that same time, Rural/Metro made large cash donations, including hundreds of thousands of dollars in Arizona, some of which went to entities with which the Intervenors have IFT contracts.
Karolzak was unable to state how these
8
donations were allocated among the Intervenors’ ARCR reportings. Id. at 1863-
9
70 (see also, AMR Ex. 64, Bankruptcy “Global Notes”). II.
10
Karolzak was unable to state how many Rural/Metro entity
11
employees had been laid off since approximately three months before the
12
bankruptcy started, or in calendar year 2014. Id. at 1873. JJ.
13
Rural/Metro has been in Maricopa County for approximately 30
14
years, but did not produce any letters or witnesses to state that the Rural/Metro
15
Group is doing a good job and has their support. Id. at 1875-77.
16
42.
Greg James, Rural/Metro’s West Region Division President, had been
17
with Rural/Metro for two months at the time of his testimony. Id. at 1900. He did not
18
know what percentage of Rural/Metro’s transports come out of Arizona, and refused to
19
state what the Arizona or Maricopa County percentage contributions to national
20
revenue are. RT V9 at 1935-37. He testified as follows:
21
A.
None of the capital identified in the bankruptcy filings has been set
22
aside for any particular region or market.
23
Maricopa County operations had requested for 2015, or how much was allocated
24
in 2014. Id. at 1938-39.
25 26 27
B.
He did not know how much the
In 2014, Rural/Metro provided 10 to 15 new ambulances to
Maricopa County. Id. at 1939. C.
In the event Rural/Metro strikes an agreement with the East Valley
28
Consortium to avoid duplication of labor expense through using fire department
29
paramedics, that would bring about a cost savings, but Rural/Metro would not
30
commit to whether the monies saved would be used to reduce Southwest 65
1 2
Ambulance’s overall expenses, or whether the savings would be passed on to the public via lower rates and charges. Id. at 1940-45. D.
3 4 5
$8.5 million loss, under its contract, for 2014 is generally accurate (AMR Ex. 61). Id. at 1947 E.
6 7
Santa Clara County’s statement that Rural/Metro is projecting an
The Santa Clara County loss will be covered by Rural/Metro
Corporate, who in turn would obtain that money from corporate allocations to
8
individual business units, including the Maricopa County operations.
9
1954-56.
10
F.
Id. at
The attorneys handling the union litigation against Rural/Metro
11
Corporation, within the Rural/Metro bankruptcy, are not in-house counsel. The
12
witness could not state how much the outside law firm was charging Rural/Metro
13
for the ongoing bankruptcy litigation during any particular month or calendar
14
year 2014. Id. at 1956-57. CONCLUSIONS OF LAW
15 16 17 18 19 20
1.
This administrative hearing was held under the authority of, and pursuant
to, A.R.S. §§ 36-2234 and 41-1092, et seq. and A.A.C. R2-19-101, et seq. 2.
AMR has the burden to prove, by a preponderance of the evidence, that
the proposed CON should be granted. A.A.C. R2-19-119. 3.
A preponderance of evidence is “[t]he greater weight of the evidence not
21
necessarily established by the greater number of witnesses testifying to a fact but by
22
eveidence that has the most convincing force; superior evidentiary weight that, though
23
not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to
24
incline a fair and impartial mind to one side of the issue rather than the other.” BLACK’S
25
LAW DICTIONARY 1301 (9th ed. 2009).
26
4.
The Director and ADHS have jurisdiction over ground ambulance services
27
under Arizona Revised Statutes Title 36, Chapter 21.1, Article 2 and A.A.C. Title 9,
28
Chapter 25, Articles 9-11.
29 30
5.
The Legislature, through the enactment of the CON statutes, mandated a
fully regulated ambulance industry. ADHS, through BEMSTS, regulates ambulance 66
1 2 3 4 5 6 7 8
services in the State of Arizona, including the CON application process and the CON renewal process. See A.R.S. §§ 36-2232 through 36-2246. 6.
ambulance and ambulance services. See A.A.C. R9-25-901 through R9-25-1110. 7.
Any entity that wants to operate an ambulance in the State of Arizona may
do so only after being granted a CON by ADHS. A.R.S. § 36-2233. 8.
A.R.S. § 36-2233 governs the issuance of a CON for the operation of
ambulance services in this State, and requires in pertinent part: A.
9 10
In addition to the statutory framework, the ADHS adopted rules to regulate
That a CON applicant must apply for a CON on forms prescribed by
the Director. A.R.S. § 36-2233(A); B.
11
That a CON applicant must demonstrate that public necessity
12
requires the proposed service or any part of the service. A.R.S. § 36-2233(B)(2);
13
and C.
14
That a CON applicant must demonstrate that it is fit and proper to
15
provide the service. A.R.S. § 36-2233(B)(3).
16
9.
A.A.C. R9-25-902 outlines the application requirements for a CON.
17
10.
Public necessity means “an identified population needs or requires all or
18
part of the services of a ground ambulance service.” A.A.C. R9-25-901(33). Public
19
necessity includes, but is not limited to, a review of the need for additional transports,
20
the financial impact of granting a new CON on the current providers, whether there is
21
evidence of substandard performance by the existing providers, a review of current
22
providers and the Applicant’s proposed response times. A.A.C. R9-25-903.
23
11.
In determining public necessity, the Director shall also consider any
24
information introduced at hearing on the applicable factors of A.A.C. R9-25-903. The
25
failure to provide information on any factors identified in this rule does not, by itself,
26
constitute grounds to deny the application. A.A.C. R9-25-903.
27
12.
Further guidance on public necessity can be found in Guidance
28
Document GC-099-PHS-EMS. AMR 1F. The concept of public necessity recognizes
29
that the primary focus of the inquiry should be on the best interests of the public and
30
not upon protecting the territory or property rights of current providers in the area, 67
1 2 3 4
though the impact on the current providers of service is one of the factors to be considered. See e.g., A.R.S. § 36-2236(A). 13. includes: A plan for a robust, on-going benchmarking and performance improvement process that encompasses all components of the EMS system from emergency medical dispatch through emergency department arrival; A plan to collect and submit electronic patient care reports consistent with BEMSTS guidelines; A plan to adopt clinical guidelines and operating procedures for time sensitive illness consistent with best practice guidelines; A plan to initiate guideline-based pre-arrival instructions for all callers accessing 9-1-1 for assistance; Evidence of regular attendance and participation in meetings of the regional and State EMS Councils; A plan to ensure that ambulance service will be maintained and improved for rural communities; and Assurance that the service model will be cost effective and not result in higher ambulance rates.
5 6 7 8 9 10 11 12 13 14 15 16
According to the Guidance Document, information to be considered
14.
Public necessity necessarily includes an inquiry into “need,” but this
17
concept of need is different than the outdated Arizona Corporation Commission
18
concept of “unmet need,” which conferred a right of first refusal upon a CON holder.
19
15.
Fit and proper means “that the director determines that an application for
20
a certificate of necessity or a certificate holder has the expertise, integrity, fiscal
21
competence, and resources to provide ambulance service in the service area.” A.R.S.
22 23 24 25 26 27
§ 36-2201(21). 16.
The Director has the authority to determine, fix, alter, and regulate just,
reasonable, and sufficient rates and charges for the provision of ambulances, including rates and charges for ALS service, BLS service, mileage, standby waiting, subscription service contracts and other contracts related to the provision of ambulance services. A.R.S. § 36-2232(A)(1); A.R.S. § 36-2239; A.A.C. R9-25-1101, et seq.
28 29 30
68
1 2 3 4 5 6 7
17.
ADHS can set uniform rates and charges for common service areas when
all ambulance services in that common service area request uniform rates and charges. A.R.S. § 36-2232(E). 18.
A.R.S. § 36-2234(E) and A.R.S. § 36-2239(A) authorizes CON holders to
apply for automatic rate increases annually. These rate increases are separate and apart from any general rate increases that CON holders may request. 19.
The Director may consider any other information or documents that may
8
assist in evaluating the application or the proposed rates and charges. A.A.C. R9-25-
9
902(A)(4); A.A.C. R9-25-1101(A)(10).
10 11
20.
A CON is not a franchise, may be revoked by the Director, and does not
confer a property right upon its holder. A.R.S. § 36-2236(A). Hearing Issues
12 13
21.
Pursuant to the Second Amended Notice of Hearing, the following issues
14
were established, and based upon AMR’s Application package, as amended, the
15
exhibits admitted during the course of the hearing, the testimony of the witnesses, the
16
issues were considered as follows:
17 18
A. Whether public necessity requires the service or any part of the service proposed by the Applicant, and if such service would be in the public’s best interest, as required by A.R.S. § 36-2233(B)(2) and A.A.C. R9-25-903.
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22.
The evidence presented established that in 2012, Rural/Metro acquired
additional ambulance service providers in Maricopa County, which resulted in Rural/Metro being the only private ambulance provider in the county. 23.
Without options to seek other providers, municipalities have to rely on
Rural/Metro to respond to any RFPs and to provide service to their areas. 24.
It was uncontroverted that having only one private provider poses a risk to
Maricopa County in so far as the withdrawal of that single provider, for any reason, would cause significant chaos in the delivery of ambulance service. 25.
In 2013, Rural/Metro filed for bankruptcy. Though the bankruptcy is not,
in and of itself, a concern going forward, the financial health and stability of Rural/Metro
30
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1 2 3 4 5 6 7
as it emerges from bankruptcy is a valid concern for the Department as it seeks to regulate ambulance service providers in Maricopa County. 26.
Though the testimony presented by Rural/Metro paints a rosy picture of
Rural/Metro’s financial future, that picture is based on a variety of manipulations to the records submitted to the bankruptcy court to reach a conclusion that it was meeting projections.
Most notably, the insistence that “non-recurring” expenses should be
added back in to the calculations because they were not meant to be included is
8
disingenuous. To the extent the expenses were those incurred prior to the bankruptcy
9
being approved, that argument may be valid, but for additional legal expenses going
10
forward, like those incurred in this matter and in the bankruptcy litigation with the union
11
members, those are a cost of doing business that cannot be ignored.
12
27.
It appears from the records provided that Rural/Metro will be unable to
13
meet the financial projections for 2014 that allowed it to emerge from bankruptcy. This
14
is not to say that Rural/Metro will collapse and withdraw from the Maricopa County
15
market. However, since its bankruptcy, Rural/Metro has withdrawn from other markets
16
that it deemed were not profitable.
17
28.
Similarly, Rural/Metro downplayed the service issues raised as being
18
singular events and not a systemic problem. However, prior to the bankruptcy filing
19
and in the months since, BEMSTS has received complaints and concerns regarding
20
Rural/Metro’s performance.
21
compliance with certificated response times and has ongoing investigations regarding
22
whether Rural/Metro is still fit and proper to operate an ambulance service in Arizona.
23
29.
In fact, BEMSTS has found Rural/Metro being out of
As to the adverse financial impact to the existing CON holders, the
24
testimony offered by Rural/Metro was incomplete and was based on data that was
25
known to be inaccurate going forward. Using data from before the reorganization and
26
other known changes to Rural/Metro’s expenses cannot provide an accurate picture of
27
the real financial impact.
28 29
30.
It is noted that the statutes and regulations do not require that existing
CON holders remain whole and suffer no adverse financial impact, which would
30
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1 2 3 4 5 6 7 8 9
necessarily occur at some level. Rather, an adverse financial impact is one factor to be considered. 31.
American Medical Response, Inc. has a strong national presence and is
the largest provider of ambulance service in the country. Its focus on advancing clinical excellence and improving clinical outcomes, both within its own business entities and with the public further supports its inclusion in the Maricopa County EMS system. 32.
AMR has established that its proposed operation in Maricopa County is in
the public’s best interest. B. Whether the Applicant is fit and proper to provide the services proposed, as required by A.R.S. § 36-2233(B)(3).
10 11
33.
American Medical Response, Inc.’s has a strong nation presence in the
12
ambulance services arena including two subsidiaries already holding CONs in Arizona.
13
The experience and qualifications of AMR’s initial management team, together with
14
American Medical Response, Inc.’s experience, focus on clinical excellence, and
15
financial strength and resources available through its parent, EVHC, evidence that it
16
has the expertise, integrity, fiscal competence, and resources to provide the proposed
17
ambulance service in the proposed service area.
18
34.
AMR established by a preponderance of the evidence that it is fit and
19
proper to provide the services proposed as defined by A.R.S. § 36-2201(21) and
20
required by A.R.S. § 36-2233(B)(3).
21 22 23 24
C. Whether the Applicant’s proposed service area as set forth below is in the best interests of the public, or if some other service area should be granted by the Director, as required by A.R.S. §§ 36-2232(A)(3), 36-2233(B)(2) and 36-2233(E); A.A.C. R9-25-902 and A.A.C. R9-25-903. Proposed Service Area (in accordance with A.R.S. § 36-2233(E)(2):
25 26 27
The political subdivision of Maricopa County, not limited to a specific date, with the exception of those geographic areas covered by the following C.O.N.s:
28 29
1. Buckeye Valley Rural Volunteer Fire District dba Buckeye Valley Volunteer Unit (C.O.N. No. 8);
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71
1 2 3
2. The Fire District of Sun City West dba Fire District of Sun City West Ambulance Service (C.O.N. No. 114); other than the medical campus of Banner Del E. Webb Medical Center. 3. Daisy Mountain Fire District (C.O.N. No. 105)
4 5 6
4. Sun Lakes Fire District (C.O.N. No. 12) 5. Life Line Ambulance Service, Inc. (C.O.N. No. 62)
7 8 9 10 11 12 13 14 15
The geographic area AMR requests in its C.O.N. Application does overlap the C.O.N. service area covered by the Phoenix Fire Department (C.O.N. No. 76) and all C.O.N. service areas covered by the Rural/Metro and its subsidiaries: Canyon State Ambulance (C.O.N. No. 58), Southwest Ambulance and Rescue of Arizona (C.O.N. No. 66), Southwest Ambulance Maricopa (C.O.N. No. 86), Rural/Metro Corp - Maricopa (C.O.N. No. 109), Com Trans Ambulance Service, Inc. (C.O.N. No. 46), Professional Medical Transport, Inc. (C.O.N. 71), American Ambulance (C.O.N. No. 75), and the hospital grounds of Banner Del E. Webb Medical Center at 14502 W. Meeker Blvd., Sun City West, AZ 85375 located within the certificated service area of Fire District of Sun City West Ambulance Service, C.O.N. No. 114.
16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
35.
Though Rural/Metro raised some questions as to AMR’s ability to meet
response times in rural areas on the proposed service areas in addition to populated areas not covered by the “heat map,” the evidence established many of the populated areas in the Phoenix metro area were covered by existing contracts in which Rural/Metro was the provider or that AMR would be able to meet the response times. 36.
AMR established by a preponderance of the evidence that the proposed
service area is in the best interests of the public. D. Whether the Applicant’s proposed rates and charges, as set forth below, are just, reasonable, and sufficient or whether other rates and charges should be granted by the Director, as required by A.R.S. §§ 36-2232(A)(1) and 36-2239; A.A.C. R9-902, A.A.C. R9-25-903 and A.A.C. R9-25-1101, et seq. Proposed rates and charges: i. Advanced Life Support Base Rate ii. Basic Life Support Base Rate iii. Mileage Rate (Per Loaded Patient Mile) 72
$862.40 $768.20 $ 17.88
3
iv. Standby Waiting Charge (per hour) v. Subscription Service vi. Disposable supplies, medical supplies and medication and oxygen related costs
4
37.
1 2
$192.05 $ 80.54 Per A.R.S. § 36-2239(D)
BEMSTS recommended that AMR’s proposed Mileage Rate be adjusted
5
to $15.48 instead of the $17.88 originally proposed.
6
establish that the other rates were not just, reasonable, or sufficient. 38.
7 8 9 10
No evidence was offered to
AMR established by a preponderance of the evidence that the proposed
rates and charges, with the adjusted Mileage Rate were just, reasonable, and sufficient. E. Whether the type and level of service proposed by the Applicant is in the best interest of the public, as required by A.R.S. § 36-2201(11)(b)-(c); A.A.C. R925-903(A)(4), (B), (C), and A.A.C. R9-25-901(26) and (51).
11
39.
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AMR established by a preponderance of the evidence that the 24 hours a
day, 7 days a week, emergency (911) and non-emergency inter-facility (including convalescent) transportation service proposed by AMR is in the best interests of the public. F. Whether the Applicant has addressed or will provide the necessary information set forth in A.A.C. R9-25-902 and as required by A.R.S. § 36-2233.
17 18 19
40.
AMR provided uncontroverted evidence that it has addressed all the
necessary information set forth in A.A.C. R9-25-902, except for certain ministerial items
20
that will be provided following a decision to issue a CON, but before starting
21
operations.
22
41.
AMR established by a preponderance of the evidence that it has address
23
or will provide the necessary information set forth in A.A.C. R9-25-902 and as required
24
by A.R.S. § 36-2233.
25
G. If the initial C.O.N. is approved, will the C.O.N. holder operated by American Medical Response of Maricopa, LLC begin using e-PCR technology?
26 27 28 29 30
42.
AMR provided uncontroverted testimony that it will use e-PCR technology
in connection with its proposed operation. 43.
AMR established by a preponderance of the evidence that it will use e-
PCR technology in connection with its proposed operation. 73
1 2
H. If the initial C.O.N. is approved, will the C.O.N. holder operated by American Medical Response of Maricopa, LLC begin submitting e-PCR data to the AZPIERS system?
3 4
44.
the AZ-PIERS system.
5 6 7 8 9
45.
AMR established by a preponderance of the evidence that it will submit e-
PCR data to the AZ-PIERS system. I. If the initial C.O.N. is approved, will the C.O.N. holder operated by American Medical Response of Maricopa, LLC fully participate in the Premier EMS Agencies program?
10 11
AMR provided uncontroverted testimony that it will submit e-PCR data to
46.
AMR provided uncontroverted testimony that it will fully participate in the
Premier EMS Agency’s program.
12
47.
AMR established by a preponderance of the evidence that it will fully
13
participate in the Premier EMS Agency’s program.
14
J. If the initial C.O.N. is approved, will the C.O.N. holder operated by American Medical Response of Maricopa, LLC fully participate in Bureau of EMS and Trauma System quality improvement initiatives including but not limited to SHARE and E.P.I.C.-TBI?
15 16 17
48.
18 19
AMR provided uncontroverted testimony that it will fully participate in all
BEMSTS quality improvement initiatives, including those specifically listed. 49.
20
AMR established by a preponderance of the evidence that it will fully
21
participate in all BEMSTS quality improvement initiatives, including those specifically
22
listed.
23
RECOMMENDED DECISION
24
In view of the foregoing, it is recommended that the Director approve the
25
proposed Application, directing BEMSTS to issue a CON to American Medical
26
Response of Maricopa, LLC (“AMR”) upon AMR’s confirmation that it is ready to
27
immediately assume all rights and responsibilities under that CON.
28 29
In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is five days after the date of that certification.
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1
Done this day, December 8, 2014.
2
/s/ Tammy L. Eigenheer Administrative Law Judge
3 4 5 6 7 8
Transmitted electronically to: Will Humble, Director Arizona Department of Health Services
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